Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

PRIVATE BUSINESS

BRITISH RAILWAYS (No. 2) BILL (By Order)

MIDLAND MEIRO BILL (By Order)

CARDIFF BAY BARRAGE BILL [Lords] (By Order)

Orders for consideration, as amended, read.

To be considered on Thursday 31 January.

Oral Answers to Questions — AGRICULTURE, FISHERIES AND FOOD

Regional Food

Mr. Thurnham: To ask the Minister of Agriculture, Fisheries and Food what he is doing to encourage the production of regional food specialities; and if he will make a statement.

The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. David Curry): Grant aid has been available since March 1987 to encourage the formation of groups marketing speciality and regional foods.

Mr. Thurnham: When my hon. Friend next meets the bureaucrats in Brussels will he tell them how pleased we were when our hon. Friend the Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food opened the national black pudding competition in Bolton? Will he tell them also that we wish to encourage such regional delicacies rather than have all our food homogenised?

Mr. Curry: I shall certainly pass on that message. I happen to know that one can get extremely good black pudding in Brussels, with apple sauce, its preferred accompaniment. We certainly wish to promote our regional foods—they are just as good as anybody else's. We will be on the watch to ensure that recipe law in Brussels does not produce precisely the protectionism to which my hon. Friend refers.

Mr. Hunter: Despite the desirability of regional food specialities, surely the problem lies not so much in production but in the absence of profitability—something which applies not only to regional foods? Surely that is the matter which should be addressed.

Mr. Curry: I am not sure whether it is up to the Government to address the profitability of certain items. The Curry household purchases a considerable number of speciality foods and the Minister with responsibility for

the housekeeping money makes adequate provision for the speciality foods that his wife persists in buying—that is, a Frenchwoman buying English speciality foods.

Industrial Fishing

Mr. David Porter: To ask the Minister of Agriculture, Fisheries and Food if he will make a statement on industrial fishing; and what representations he has received on it.

Mr. Curry: Industrial fishing is not acceptable if it endangers stocks. Human consumption fisheries must always take priority.

Mr. Porter: I welcome my hon. Friend's condemnation of industrial fishing for the damage that it causes. Will he take this opportunity to confirm that it is the Government's policy to support the whole United Kingdom fishing industry in whatever part it occurs, whether it involves inshore fishermen, deep-sea fishermen, merchantmen and so on? Will my hon. Friend make every effort that he can to continue to support that industry?

Mr. Curry: I can certainly give my hon. Friend that assurance. He will know that we fought very hard to get a good deal in Brussels against proposals that were extremely dismal for the British industry. We got a particularly good swap for sole, which will benefit Lowestoft in which my hon. Friend takes a great interest. We are pushing for conservation measures at home if we do not get Communitywide agreement. Those two points are essential for the future of our industry.

Dr. Godman: Speaking as one who would like a complete ban on industrial fishing, may I offer my compliments to Her Majesty's Government for the decision to close the Shetland sandeel fishery? What compensation is being offered to Shetland fishermen who are being denied access to that fishery and who have to find alternative forms of fishing?

Mr. Curry: The hon. Gentleman will know that conservation measures are in the interests of fishermen above all. I shall refer the hon. Gentleman's question to my right hon. Friend the Secretary of State for Scotland, who has direct responsibility for that fishery. The hon. Gentleman will know that the Scottish Office has acted promptly. We regard conservation very seriously indeed, which is why we are consulting our own industry on conservation measures at this moment.

Mr. Salmond: Would not a clamp-down on industrial fishing on a European level be an infinitely preferable conservation measure to the eight-day tie-up which will risk the lives of fishermen at sea? Has the Minister seen the latest announcement on substantial aid to French fishermen in the current crisis? How can he justify the fact that every other European country is giving substantial aid to the fleet while he washes his hands of the fate of Scottish fishermen?

Mr. Curry: First, it is false to suggest that if industrial fishing ceased we could abandon all other conservation measures. That is exactly what the hon. Gentleman said and it is ridiculous. Secondly, my responsibilities cover British fishermen and I work in the interests of all fishermen in the United Kingdom. I do not have the


narrow parochialism which the hon. Gentleman persistently demonstrates. Thirdly, the Government put a great deal of support behind the fishing industry. The volume of Government support is considerable in relation to the size of that industry.

Mr. Morley: I add my congratulations to the Government on the action that they have taken in closing the Shetland industrial fisheries. It is an important conservation measure. But does the Minister accept that the eight-day tie-up is a restriction on fishermen who have used a wider mesh net, which is effective as a conservation measure? Why should those fishermen suffer from that blunt, ineffective and possibly downright dangerous measure? I understand—the Minister will perhaps confirm it—that the measure was suggested by our Government in Brussels.

Mr. Curry: I refute what the hon. Gentleman just said. The measure was in the Commission proposals. It derives from the recommendation that fishing effort should be reduced by 30 per cent. The reason for the proposal is that an absolute tie-up delivers a reduction in fishing. We have to recognise that that is the objective. However, the Government recognise, and have always preferred, measures to restrict gear, as they are more effective and a better means of tackling conservation. We have submitted to Brussels an alternative which is under consideration now. If Brussels accepted our proposal to use larger mesh sizes as an alternative it would enable us not to apply the eight-day rule. It is important that we deliver the conservation. We cannot do so unless fishermen recognise that the object is a lower effort against the fishery.

Equine Export

Mr. Harry Greenway: To ask the Minister of Agriculture, Fisheries and Food what steps he is taking to protect equines from live export after 1992; and if he will make a statement.

The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. David Maclean): There have been no recent EC meetings to discuss the Commission's proposals on the welfare of animals during transport. When discussions resume we shall continue to press for the retention of controls to prevent horse exports for slaughter.

Mr. Greenway: I welcome my hon. Friend's reply. Is he aware that I am the chairman of a committee of representatives from organisations throughout Britain which work for the welfare of horses and representatives of controlling interests? The committee is determined to bring to the attention of other European countries the need to take account of the welfare of horses. Horses are not merely pieces of flesh. They are important to this country. What are the Government doing to persuade the other 11 EC countries to support his admirable approach? Without effective effort in that direction we shall get nowhere.

Mr. Maclean: I am aware of the strong contribution that my hon. Friend makes to the cause of protecting horses. Of course, the Government are pressing, through every EC channel open to us, to retain the minimum value controls. I urge my hon. Friend, his committee and various other welfare organisations, who can perhaps move more

freely in Europe and do not use the diplomatic channels that we use, to redouble their already excellent efforts to bring home to people in other European countries that the minimum value system should be retained.

Mr. Wigley: Does the Minister accept that the matter causes concern in many areas—urban as much as rural areas? The anxiety is about not only horses but all animals. There is a feeling that if animals are to be killed, it is better that it happens before transport and that, if they are transported live, there should be stringent standards in force to ensure that there is no suffering.

Mr. Maclean: The majority of animals are slaughtered and exported to other countries in carcass form. We want the toughest possible controls on the movement of any animals to any country in the EC. However, we regard horses as a special category because of their particular physiological characteristics. Horses must be protected. The minimum value rules do it. They disadvantage no one commercially except Britain. We are happy to be disadvantaged commercially because of the welfare benefits.

Mr. Nicholls: Does my hon. Friend agree that, the attitude of the British towards the health of horses is unique within the EC, which presumably explains the many letters that I have received from constituents calling for the retention of the minimum value system? I sympathise to the hilt with my constituents' concerns. Does my hon. Friend agree that, while those who write such letters to us fully accept that the problem is not of the Government's making, they look to the Government to ensure that, one way or another, the preservation and safety that we want, will remain?

Mr. Maclean: I agree with my hon. Friend. The Government are making strenuous efforts to maintain the minimum value system. I understand that Ireland also has some special and unique controls. Horses and, I suspect dogs have a particular place of affection in the British character, probably going back many years in our history. We want to maintain that and there is no reason why we cannot. We shall use every means at our disposal to argue the case.

Mr. Ron Davies: May I assure the Minister that he will receive wholehearted support from the Labour party in any efforts that he intends to make to prevent the introduction of the live trade in equines for export and slaughter? Will he acknowledge that there are unique problems involved in the transport of equines from Ireland and Britain that are invariably linked to difficulties associated with transporting goods across the sea? If the Minister fails in his endeavours to maintain the minimum value legislation, will he use the specific geographical problems to which I referred in an effort to seek a derogation, if that is the necessary way to protect horses in this country?

Mr. Maclean: First, I welcome the hon. Gentleman's words and the consensus that exists among all parties in the House and all organisations in the country. There are many animal welfare issues on which we are not all in complete agreement, but on this one we are, which is helpful and strengthens our arm in Europe. We are fighting, as our first priority, to maintain our minimum value system. There are fall-back positions if we are not


successful in achieving that, and we can be fairly devious in coming up with other systems. However, our first priority is to win—let us not talk about alternatives, but let us persuade our European partners and everyone else to maintain the present system.

Mr. Moate: We know and appreciate how hard Ministers are working to prevent the export of live animals for slaughter, but will the Minister be frank with the House and answer the following question—if he fails, what power does Parliament have to prevent that vile trade?

Mr. Maclean: We do not intend to fail—we just do not intend to do so. I do not think it appropriate now to discuss any of those secondary issues.

Salmonella

Mr. Ashton: To ask the Minister of Agriculture, Fisheries and Food if he will make a statement about his policy for reducing the level of food poisoning caused by salmonella.

Mr. Maclean: The Government have a whole range of measures for tackling the problem of salmonella food poisoning, whatever its source or wherever in the food chain it may appear.

Mr. Ashton: If that is so, why did the number of salmonella cases rise from 8,000 last year to 12,000? Surely, the policy is not working. Is it not a fact that many of the cases are due to imported eggs from the continent, which the Minister could—but did not—have tested under article 36 of the EC laws? Why should an egg producer like Mr. Chapman of Hayton near Retford in my constituency have his flock destroyed and part of his business closed down without any right of appeal, when imported eggs from the continent are allowed to come in without any such checks? Will the Minister take notice of my hon. Friend the Member for South Shields (Dr. Clark) and the campaign that he has been waging to stop the spread of salmonella from increasing every year?

Mr. Maclean: The hon. Gentleman and the House could do with a few facts. The latest update on the salmonella food poisoning in this country will show slight increase in salmonella food poisoning in humans—a large decrease in the salmonella typhimurium and an increase in salmonella enteritidis. The latest figures for 1990 will also show that in egg-laying flocks there has been a huge and dramatic decrease in salmonella enteritidis. Those figures point to the success of the control measures that we have taken.

Mr. Ian Bruce: Does my hon. Friend agree that, when we have a common agricultural policy that is intended to ensure a level playing field in the market place, we should stress that the excellent measures that the Government have introduced to preserve people's health should extend throughout the European Community? Does he further agree that we should not tolerate the ridiculous situation that those producing eggs in Poland, Holland or wherever, do not have to reach the same high standards as British egg producers?

Mr. Maclean: We agree that the measures that we have taken here on salmonella should extend to other countries in the EC, and we are pressing most strongly that they do so, as we do with animal welfare. Other countries should

see the wisdom of our ways. My hon. Friend has made a good marketing statement on behalf of British-produced eggs, as he has pointed out our superior system for detecting salmonella. Consumers can be reassured about home-produced eggs.

Pigs

Mr. Murphy: To ask the Minister of Agriculture, Fisheries and Food if he will make a statement on the alternatives to sow stalls and tethers in the housing of dry sows.

Mr. Maclean: On 10 January, my right hon. Friend the Minister announced the Government's intention to ban the installation of new close confinement stalls and tethers for pigs and to phase out existing systems of this type.

Mr. Murphy: As the Minister said, only a moment ago, that he was concerned about animal welfare, he must agree that there is widespread concern about some aspects of intensive farming, particularly pig farming. Therefore, will he give a guarantee that the Government, and he in particular, will support the private Members Bill dealing with pig husbandry going through the House?

Mr. Maclean: There is no difference between the main principles of the Bill and the regulations that my right hon. Friend the Minister intends to make. The trouble is that the Bill does not go as far as our regulations would go, nor does it encompass all the categories of animals—boars, fattening animals and animals in the field. Our regulations are a bit better.

Mr. Maxwell-Hyslop: Will my hon. Friend ensure that the coming into effect of the regulations of which he speaks is the same throughout the EC and throughout the whole of the United Kingdom so that our producers are not put at a disadvantage compared with imports either from other EEC countries or other parts of the United Kingdom?

Mr. Gummer: I take my hon. Friend's point. That is why we must ensure that we phase out our systems within a sensible time scale, so that the rest of Europe will be able to come in to our time scale. If we move precipitately on that, we may not be able to get complete agreement in the EEC, but we are pressing most strongly that other countries should follow our lead on this.

Mr. Geraint Howells: I have listened with interest to what the Minister had to say about the Bill to be introduced tomorrow. At this late stage, will the Government assure the House that they will support the Bill?

Mr. Maclean: I have made it clear that I believe that our regulations go further and are superior to the proposals In the Bill. If the House waits, it will hear, when I speak in the debate on the Bill tomorrow, my response to it and what I have to say about the regulations, on which we started I o consult yesterday.

Less-favoured Areas

Mr. Amos: To ask the Minister of Agriculture, Fisheries and Food if he will make a statement on the level of Government assistance to sheep and cattle farmers in the less-favoured areas.

The Minister of Agriculture, Fisheries and Food (Mr. John Selwyn Gummer): In addition to the support measures from which all sheep and cattle farmers benefit, producers in the less-favoured areas are eligible for a number of payments which are specific to those LFAs.

Mr. Amos: As the incomes of hill farmers in my constituency are now under considerable pressure, will my right hon. Friend take urgent measures to deal with the unacceptably long delays in the processing of payments for grants and subsidies? For example, one of my constituents, Mr. David Ridley, told me that it has taken four months to deal with his suckler cow premium and with an agricultural improvement scheme. Another farmer told me that the hill livestock compensatory allowance payment distribution forms are already four weeks later than they were last year. As a matter of urgency, will my right hon. Friend deal with this administrative inefficiency?

Mr. Gummer: We are concerned to help my hon. Friend and farmers generally in respect of these matters. However, when the European Community changes the arrangements we have to change the whole system of payment and that holds matters up. I am trying to proceed as fast as possible. The fact that the HLCA payment forms have not yet been initiated arises from a legal problem between ourselves and the rest of the Community over the arrangements for the 1·4 headage limit decision. I did not want that decision. Indeed, I fought and voted against it. These delays are one of its costs. That is why I supported the bringing forward of some of the payments and this has at least helped to ameliorate farmers' problems.

Mr. Pike: Does not the Minister, despite his reply to his hon. Friend the Member for Hexham (Mr. Amos) a moment ago, recognise that the farmers in less-favoured areas·where, owing to difficulties in the industry, people are going out of business at an increasing rate—fear that land will return to the state that prevailed in the 1930s if the Government do not take action? Is it not a fact that serious difficulties arise from delays in making payments such as HLCA? Does the Minister agree that the Government really will have to do something to put this money into the hands of farmers as soon as possible? The situation is absolutely critical.

Mr. Gummer: Our concern is to get to farmers the payments that are due to them as quickly as possible. However, we cannot do that unless the legal arrangements are satisfactory. We are pressing, but we are still waiting for the Commission to come back to us on these matters. I shall take action the moment I can and I am considering ways of ameliorating the situation thereafter.

Mr. Hague: While accepting that most of the problem arising from the delay in making HLCA payments lies with the European Community, may I ask my right hon. Friend for an assurance that, when that problem is sorted out, every effort will be made to get the payments through to the farmers by approximately the same time as last year, which was early or mid-March?

Mr. Gummer: I can assure my hon. Friend that if it is humanly possible to make up for the delay that has been forced upon us, we shall do so.

EC Intervention Stores

Mr. Tony Banks: To ask the Minister of Agriculture, Fisheries and Food what is the current level of foodstuffs held in European Economic Community intervention stores in the United Kingdom.

Mr. Curry: A table showing intervention stocks held in the EC and in the United Kingdom is deposited monthly in the House of Commons Library. The latest figures were tabled on 15 January.

Mr. Banks: I thank the Minister for that fulsome reply. He knows that those intervention dumps of foodstuffs are now at a higher level. That is indeed very regrettable. Do the Government accept that the CAP is an absurdity which is ruining the European ideal? Is not it obscene that at a time when millions of people in Africa are suffering starvation they and we see large quantities of food that cannot be sold on the European market being stuffed into ever-increasing intervention stores?

Mr. Curry: I congratulate the hon. Gentleman on seeking so quickly to forge a new career in agriculture politics. I am sure that his Front Bench will welcome his conversion as much as I do. The most important point that he made concerned the effect on the third world. European surpluses are not an answer to the third world's problem. That is why a successful outcome to the GATT talks is of particular importance to the third world. With improved access to their products, the people there could earn their own livelihood. It is a very firm part of the Government's policy, first, that the GATT talks should succeed and, secondly, that some of the causes of these surpluses should be removed by bringing production under control and getting it closer to the marketplace. That has been and will remain our policy.

Mr. Charles Wardle: Is it appropriate to consider the level of intervention stocks in the context of EC proposals for agricultural reform? Do not those reform proposals discriminate against all but the very smallest European farms and appear to lack economic rationale?

Mr. Curry: There are four fundamental objections to the proposals that have been made. The first is that, quite simply, they are anti-economic. Any system that is designed to take an economic unit that can compete in the market place and render it incapable of competition must make nonsense economically. Secondly, of course, they are massively discriminatory against the United Kingdom and that is something we shall not tolerate. Thirdly, they cost a great deal. Fourthly, they are wide open to fraud. For those reasons the United Kingdom Government will be obliged to oppose the proposals. We have a much better scheme for reforming the CAP. What we want is to get genuinely into the marketplace and make sure that we create units that can survive in more market-oriented conditions.

Mr. David Clark: Will the Minister be a little less coy in future when answering questions such as this? Will he confirm that there are 700,000 tonnes of beef, 260,000 tonnes of butter and 335,000 tonnes of skimmed milk in intervention stores? Will he further confirm that the CAP budget is likely to be increased by 25 per cent. in the next two years and that, as he told the Oxford farming conference, unless we take action quickly the CAP will be out of control?

Mr. Curry: If the hon. Gentleman wants recital of stock levels, I am perfectly willing to give one, but it would take at least 20 minutes. Yes, as I said at the Oxford conference, the CAP is in serious difficulty because, irrespective of the GATT negotiations, there is a major budgetary problem. Many circumstances have contributed to that. There has been the BSE crisis, during which the Opposition did not go out of their way to help us to reassure the public that the measures that we took were adequate—indeed, quite the opposite. Problems have also been caused by the Gulf crisis, the impoverishment of eastern Europe, the drought, German unification, increased imports and changing consumption patterns. On top of that, we have declining consumption and increasing output. They are structural problems which cannot be avoided. Yes, we are back in a serious situation, we will have to tackle it, and it would have to be tackled whether or not GATT existed.

Mr. Bellingham: What percentage of United Kingdom taxpayers' support for agriculture is getting through to the British farmer and thence to the rural economy rather than being eaten up in the corruption and bureaucracy of the CAP?

Mr. Curry: Most Community support goes towards market regimes, which means that it does not go directly to the farmer's pocket. For example, the substantial amount of money that we put into supporting beef last year has not appeared in the form of a cheque to the farmer. But that support is essential to prevent an immense drain on the taxpayer and major problems for farmers. One reason why the new proposals in Brussels are unacceptable to us is that opportunities for fraud are almost inherent in them. We have always fought that and we shall continue to do so.

Agriculture Subsidies

Mr. Allen: To ask the Minister of Agriculture, Fisheries and Food what was the remit given to European Community negotiators on agricultural subsidies at the December GATT talks; and what changes have been agreed to their remit for the resumed GATT talks.

Mr. Gummer: The Commission negotiated at the December meeting in close consultation with member states on the basis of the offer that the Council of Ministers had approved in November.

Mr. Allen: Will the Secretary of State take this opportunity to tell the House the Government's position in the resumed GATT negotiations? Does he agree with the Financial Times yesterday that the situation of industry and manufactured and agricultural products could be as serious for the world as the Gulf situation is? Will he use the GATT negotiations as a lever to secure a more sensible CAP, which I am sure hon. Members on both sides of the House would like to see?

Mr. Gummer: The Government's position on reform of the CAP has been and is clear. On the GATT round, it was Britain which managed to get the Community to put forward its offer, it is we who have sought to increase the elbow room in negotiations by the Commission and it is we who supported the Commission and pressed it to negotiate effectively. However, there must be a two-way negotiation and we hope that when negotiations are properly resumed the United States will begin to negotiate round the table

and stay there until a solution has been found, rather than addressing the rest of the world as though everyone else had to change their system to fit in with the needs of American farmers.

Mr. Ralph Howell: Has my right hon. Friend read the excellent letter from Sir Simon Gourlay in The Times today and, if so, does he agree with its principal point that the MacSharry proposals would be devastating for British agriculture? May we have an assurance that he will reject those proposals outright?

Mr. Gummer: Sir Simon Gourlay's letter in The Times today was extremely effective and pointed out clearly that it is not a sensible policy for European agriculture to make it impossible for efficient farms to compete and to prop up farms that have no chance of competing anywhere. It would not be good for Europe to go back to the canal age in agriculture.

Dr. David Clark: Will the Minister stop running away from the problem? Does he not appreciate that while the GATT talks are perceived in this country as an agricultural problem, they are indeed an industrial problem? Unless we resolve the problem we shall get into a world trade war. As the key is in agriculture, will the Minister put forward, for the House to debate, a set of proposals for the reform of the CAP so that farmers and consumers may get a fairer deal and we as taxpayers will pay less towards it?

Mr. Gummer: The hon. Gentleman seems not to realise that this country is a member of the European Community. He should come to terms with the fact that negotiations about GATT are done by the Community and that the common agricultural policy is a Community policy and not something that comes out of the back pockets of Labour Front-Bench spokesmen. It has to be negotiated in the Community if it is to succeed. My job is to do the negotiation. So far, we have got the Community to move sharply towards us in the negotiations on GATT and at long last we have convinced the Community that a radical reform of the CAP is necessary. We have now got to get a sensible reform which does not prejudice the United Kingdom. That is my battle and that battle is in the Community, rather than merely trying to make a few cheap points on the Floor of the House.

Mrs. Ann Winterton: Does my right hon. Friend accept that Cheshire dairy farmers wish to see the GATT round brought to a successful conclusion in the best interests of world trade, but that they reject totally the MacSharry proposals, in their present form, to cut milk quotas? That. would result in this country having to cut back dairy and milk production by four times more than Germany and would have an adverse effect upon the competitiveness on our processing sector.

Mr. Gummer: My hon. Friend might put it even more clearly. It would mean that there would hardly be a dairy farmer in Cheshire who would not have his quota cut by 10 per cent. and that there would hardly be a dairy farmer in Ireland who would not keep exactly the quota which he has now.

Council for the Protection of Rural England

Mr. Martyn Jones: To ask the Minister of Agriculture, Fisheries and Food when he last met representatives of the Council for the Protection of Rural England to discuss the impact of agriculture on the environment.

Mr. Gummer: My noble Friend the Minister of State met the Council for the Protection of Rural England on two occasions in 1990, the last on 1 August.

Mr. Jones: Has the Minister noticed the uncanny resemblance between the recently leaked proposals from the Commission for the reform of the CAP and CPRE's excellent document, "Future harvests"? Is he aware also of the policies of the National Consumer Council and of the Labour party, which are also virtually indistinguishable from those proposals? Will he now change his approach to the problem?

Mr. Gummer: I hope that the hon. Gentleman is not doing his party the disservice of suggesting that Labour policy is to ensure that the United Kingdom, alone of the countries of Europe, will carry the vast proportion of the cost of reform of the CAP. If that is what he says, I hope that my hon. Friends will make sure that every farmer, every consumer and every patriot knows.

Mr. Robert Hicks: Does my right hon. Friend agree that a key factor in upholding the countryside environment and supporting the rural economy is a prosperous agriculture, since farmers are the managers of the countryside? Is he aware of the real difficulties currently facing livestock producers, particularly in the south-west? Will he confirm that, if the proposals put forward by Mr. MacSharry were to be implemented, the position would deteriorate still further?

Mr. Gummer: My hon. Friend is right in saying that unless there is a prosperous farming, there can be no resources for farmers to look after the land. Therefore, if proposals would reduce the ability of competitive farmers, particularly in Britain, Denmark and Holland, those countries would find that the resources that we need for the environment were not available. My hon. Friend is right in saying that we oppose the MacSharry proposals because they would not deliver a reduction in the cost of the common agricultural policy, they would not preserve the environment and they would not protect the Community against fraud. They would enshrine for ever an entirely out-of-date, small farm system which cannot provide livings for farmers who remain on the land.

Mr. Alan W. Williams: Will the Minister accept that, with the common agricultural policy in growing difficulties and with the problems arising from the GATT negotiations, it is time for us to rethink what the common agricultural policy is all about and that agricultural support should move to support for environmental protection? Will he also accept that in rural areas the survival of small farmers is paramount?

Mr. Gummer: It depends on what the hon. Gentleman means by "small farmers". If he means family farmers as we know them in the United Kingdom, that is reasonable, but if by small farmers he means what Mr. MacSharry means by small farmers, none of the hon. Gentleman's constituents will be very pleased.
I therefore suggest to the hon. Gentleman that his first point is the better one—that we need progressively to move support that now goes almost exclusively to production-oriented systems towards help in looking after the environment. That is not the proposal of Mr. MacSharry, and I am glad to see that the hon. Member for Carmarthen (Mr. Williams) dissociates himself from the interpretation of his party's policy that we had from the hon. Member for South Shields (Dr. Clark) earlier.

Common Agricultural Policy

Mr. Wilshire: To ask the Minister of Agriculture, Fisheries and Food what plans he has to seek to persuade other EC Agriculture Ministers to reduce the costs and eliminate the surpluses of the common agricultural policy.

Mr. Gummer: I take every opportunity to promote a more rational and market-oriented common agricultural policy, with greater emphasis on the protection and improvement of the environment, as my answer to the previous question shows.

Mr. Wilshire: Will my right hon. Friend confirm that the latest proposals put forward would penalise British farmers with average-sized farms? Does he agree that the real purpose of reform of the common agricultural policy should be to reward efficiency and to help farmers compete on the world stage rather than to featherbed pocket-handkerchief homesteads and thus isolate them from market forces in the world outside the Common Market?

Mr. Gummer: I think that my hon. Friend will agree that in no other sphere would the European Community decide to opt out of international competition. It is therefore important to have competitive agriculture. But I suggest that the second aspect is that we need agriculture that can look after the land, so we need a greater emphasis on the environment at the same time.

Mr. Martlew: When discussions take place about reducing food surpluses, European Governments always discuss compensation for farmers. When will discussions take place on compensating employees in the food processing industry who lose their jobs? For example, if export restitutions are done away with, 30,000 employees will lose their jobs and I fear that some of them will be my constituents. Will the Minister introduce a scheme to compensate them?

Mr. Gummer: I think that the Minister ought first to be concerned to ensure that the kind of export restitutions to which the hon. Gentleman refers are not abolished in the haphazard way that some have suggested. That is why we cannot dissociate export restitutions from the rest of the Community system—one of the propositions that the United States has put forward. That is why we and our Common Market colleagues have said that they must be part of the whole system and that the whole system must be reduced in a sensible, measured way. In those circumstances, we can protect jobs in a competitive environment.

USA (Agricultural Support)

Mr. Lord: To ask the Minister of Agriculture, Fisheries and Food what information he has on direct and indirect support to agriculture by the United States of America.

Mr. Curry: Provisional estimates by the Organisation of Economic Co-operation and Development are that total transfers to United States agriculture were some US $67 billion in 1989, of which $46 billion was directly funded by taxpayers and the remainder by consumers.

Mr. Lord: I thank my hon. Friend for his answer which indicates clearly that United States farmers are subsidised every bit as much as European farmers are. Will he assure the House that, although a satisfactory result on the GATT round is very important to everyone, it will not be achieved at the expense of our very efficient and hard-pressed farmers?

Mr. Curry: The level of subsidy is rather higher in the Community than it is in the United States and there is no point in trying to avoid that, but, although both sets of farmers are heavily subsidised, the subsidies are as nothing compared with those in Japan. It is extremely important to do a deal that is fair to both sides so that farmers can compete in the world market when they are efficient and looking to the marketplace.

Irradiated Food

Mr. Michael: To ask the Minister of Agriculture, Fisheries and Food what steps he has taken to ensure the adequate protection of the public in respect of irradiated food in the United Kingdom since 1 January 1991.

Mr. Gummer: The interests of consumers are fully protected by separate licensing and labelling regulations which came into effect on 1 January.

Mr. Michael: Can the Minister explain to us how that choice and protection can be offered, when there is no simple scientific test to show whether food is irradiated, especially when it comes from abroad?

Mr. Gummer: First, whether we have irradiation in this country or not, there has always been a problem with irradiated food from other countries. By making it legal, licensing it and being careful about the places where it can be done, we are able to protect the public very much more, and we shall insist upon the labelling of all foods in such a way that the public can choose. I am not one of those who believe that it is the Government's duty to force the prejudices of some upon others. People ought to choose and I shall choose irradiated food as being considerably safer.

Oral Answers to Questions — PRIME MINISTER

Common European Currency

Mr. Hunter: To ask the Prime Minister what discussions have taken place recently with other EC member states regarding the use of a common European currency.

The Prime Minister (Mr. John Major): The intergovernmental conference on economic and monetary union

opened in Rome on 15 December 1990. My right hon. Friend the Chancellor represented the United Kingdom. The next ministerial meeting will take place on 28 January and my right hon. Friend will continue to argue for the United Kingdom's proposals for the introduction of a common European currency, the hard ecu.

Mr. Hunter: Despite the failure of the common agricultural policy and of attempts to form a common defence and foreign policy, does my right hon. Friend nevertheless accept that the common currency has the supreme merit of being market-led and that its use will be determined by demand and not imposed by centralised bureaucracy?

The Prime Minister: I certainly agree with my hon. Friend. That is the essence of our proposal on a common currency. No one would have the hard ecu forced upon them. It will be for firms, individuals and Governments to use, as and when they wish. I am glad to be able to tell my hon. Friend that our proposals now seem to be attracting more support.

Mr. Bell: While I share his views on the common European currency, can the Prime Minister tell the House how useful a common foreign policy would have been leading up to the events of 15 January?

The Prime Minister: I think that the question of a common foreign policy is one of the matters that will be discussed at the political intergovernmental conference. The hon. Gentleman will have heard what I had to say about that on Tuesday.

Sir William Clark: As bonds are being issued in greater numbers in ecu and as from March this year futures will be able to be dealt with in ecu, does my right hon. Friend agree that that adds weight to the argument that the hard ecu as an alternative currency to sterling could come about without anything being foisted upon us?

The Prime Minister: I entirely agree with my right hon. Friend. That is certainly the case. The real virtue of the hard ecu is that it would be determined by the market, driven by the market, and not imposed upon anyone.

Engagements

Mrs. Ray Michie: To ask the Prime Minister if he will list his official engagements for Thursday 24 January.

The Prime Minister: This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall be having further meetings later today.

Mrs. Michie: In view of the Foreign Secretary's discussions in Paris today, does the Prime Minister agree that long-term peace in the middle east should be based on nations enjoying security within existing recognised national boundaries?

The Prime Minister: That is one of the matters that have been under discussion for some time and which my right hon. Friend the Foreign Secretary is continuing to discuss with his colleagues. In so far as the particular problems of the middle east are concerned, as the hon. Lady knows, we strongly support the idea of a peace conference once the present conflict in the Gulf has been resolved.

Mr. Mans: To ask the Prime Minister if he will list his official engagements for Thursday 24 January.

Mr. Major: I refer my hon. Friend to the answer that I gave some moments ago.

Mr. Mans: Does my right hon. Friend agree that, once Saddam Hussein has been expelled from Kuwait and reinvestment and reconstruction have commenced, those countries that have contributed most to the allied effort in terms of money, material and men should be at the front of the queue for jobs, work and contracts, and that those among our near neighbours who have contributed least should be firmly at the rear of the queue?

The Prime Minister: I certainly agree with my hon. Friend about that and I had the opportunity of raising the matter with the Emir of Kuwait during my recent visit to the Gulf.

Mr. Kinnock: Does the Prime Minister agree with me that it is good for the morale of our forces and for the peace of mind of their families if there is easy, low-cost communication with home? What progress is being made in improving the current inadequate arrangements? Does the Prime Minister share my view that, just as our forces have long had access to free post, it is now appropriate in 1991 for them to have at least one free phone call from the Gulf?

The Prime Minister: I agree with the general proposition put forward by the right hon. Gentleman. My right hon. Friend the Secretary of State for Defence is working to improve communications home. However, we have not yet produced a free telephone system.

Mr. Grylls: Has my right hon. Friend had any further news from the Red Cross about the future treatment of British prisoners of war?

The Prime Minister: We are trying hard at the moment to get access. The International Red Cross is trying as well and I believe that it has had a preliminary meeting with the Iraqi authorities, but we have not yet heard what the detailed outcome may be.

Mr. Harry Barnes: To ask the Prime Minister if he will list his official engagements for Thursday 24 January.

The Prime Minister: I am grateful to the hon. Gentleman for giving me advance notice of the supplementary question that he intended to ask. No one wants a ground war in the Gulf—no one at all—and it can be avoided. [Interruption.] I am sorry—I will let the hon. Gentleman ask his supplementary question.

Mr. Barnes: In the Prime Minister's answer to the question that I asked on Tuesday, he said that civilian casualties were to be avoided as far as possible and the instructions to the Air Force were to seek to avoid civilian casualties in Iraq. Will the Prime Minister therefore contact President Bush and tell him to desist from B52 carpet bombing, which is destroying vast areas around Basra where I loyally did my national service, to desist from napalm bombing in future and to desist from a ground battle which will lead to massive destruction and perhaps mutual destruction of both sets of troops?

The Prime Minister: I apologise to the hon. Gentleman for beginning to answer his question before he had asked it. As he knows, this was brought about entirely by his

courtesy in giving me advance notice of the question, for which I am most grateful. It is a conspiracy which may not last for ever, but it is enjoyable while it does.
No one wants a ground war and it can be avoided if Saddam Hussein withdraws from Kuwait, as we have asked him to do for some time. We have made it perfectly clear before—and I reiterate—that we shall not use certain weapons, but I would not think it right to spare the Iraqi military at the possible risk to British soldiers at some future stage in the conflict. My prime and overriding concern must be, and will continue to be, for the safety of British soldiers and for the avoidance of unnecessary risk.

Mr. Soames: Does my right hon. Friend agree that the continuing presence in London of the Iraqi ambassador is not only offensive but unnecessary? After a suitable period for him to settle his personal affairs, will my right hon. Friend arrange for him to be removed forthwith?

The Prime Minister: We have already reduced the Iraqi embassy to a minimum number of four members. The Iraqi ambassador will be leaving the United Kingdom very shortly and we are considering further reductions below the tiny number still there. Final decisions on the last point have not yet been made.

Mr. Trimble: To ask the Prime Minister if he will list his official engagements for Thursday 24 January.

The Prime Minister: I refer the hon. Gentleman to the answer that I gave some moments ago.

Mr. Trimble: I wish to express our concern about recent events in the Baltic states, where Mr. Gorbachev appears to be reverting to type—if he did not authorise the recent outrages, he is clearly compromising himself to the elements behind them. Will the Government now commit themselves unequivocally to giving every support to democracy in the Baltic states and does the Prime Minister agree that it would be entirely wrong for Moscow to impose direct rule?

The Prime Minister: I agree with the hon. Gentleman's last point—it would be wholly wrong and I was able to say so to Mr. Jurkans, the Latvian Foreign Minister, when I had the opportunity of meeting him yesterday. I deeply deplore the actions that have taken place in both Vilnius and Riga, and the tragic consequences for those who have been killed. This is not what we have come to expect from the Soviet Union in recent years and we hope that it will stop without delay.

Dr. Michael Clark: To ask the Prime Minister if he will list his official engagements for Thursday 24 January.

The Prime Minister: I refer my hon. Friend to the answer that I gave some moments ago.

Dr. Clark: At a time when I know that my hon. Friend has many things on his mind—including the plight of our prisoners of war who are in Iraqi hands—will he spare a thought for ex-prisoners of war from another campaign? Is he aware that in 1951 ex-Japanese prisoners of war received only £76 10s from Japan, which is equivalent to about £1,000 in today's money? Will he support their campaign to try to achieve a more appropriate settlement from their now wealthy ex-captors?

The Prime Minister: I understand and sympathise with my hon. Friend's point. The problem is that the question


of compensation was settled under the peace treaty with Japan which was signed in 1951. Under that treaty, Japan subsequently met her obligations. I fear that I must tell my hon. Friend that, much to my regret, the Government can take no further action.

Mr. Nellist: To ask the Prime Minister if he will list his official engagements for Thursday 24 January.

The Prime Minister: I refer the hon. Gentleman to the answer that I gave some moments ago.

Mr. Nellist: Is the Prime Minister aware of today's reports that Secretary of State Baker has a list of 500 firms from 50 countries which have apparently broken the embargo on Iraq and that the list includes a large number of German firms which appear to be still supplying Iraq with biological and chemical materials? Will the Prime Minister reassure the House that no British firm is on that American list? Does he agree that the families of the young men and women who have been sent to the Gulf—as a result of a policy with which I still disagree—would be horrified to think that the sacrifice that they may be called upon to make in the days and weeks ahead will have been made so that mere shareholders can grow richer out of profiteering?

The Prime Minister: I think that I can give the hon. Gentleman the assurance that he seeks. I am not aware of any involvement by British firms in the Iraqi chemical weapon programme. Although we stand ready to follow up energetically any advice to the contrary that we may receive, thus far I have no evidence whatever, from any source of any kind, of any British involvement.

Mr. Warren: Bearing in mind the very successful meeting that I understand my right hon. Friend to have had this week with the visiting Foreign Minister from Latvia, may I ask whether he will use the occasion to condemn before the House the Stalinist repression that has returned to the inventory of Gorbachev and the Government of the Soviet Union and get the whole of the west to condemn the abuse of human rights to which the people of the Baltic states are being subjected?

The Prime Minister: I am certainly content to do that. The present situation in the Baltics is clearly precarious. I must say that it is not entirely clear who is responsible for the latest actions there. It is not absolutely clear who gave the directions that led to the difficulties in Vilnius and Riga. In any event, we shall need to judge the Soviet Union by deeds and not words, and that is what we will do.

Mr. Menzies Campbell: To ask the Prime Minister if he will list his official engagements for Thursday 24 January.

The Prime Minister: I refer the hon. and learned Gentleman to the answer that I gave a few moments ago.

Mr. Menzies Campbell: If nothing is ruled in and nothing is ruled out in the fundamental review of the poll tax, may we take it that there will be statutory provisions rather than merely guidance to local authorities, which is not always observed, to exempt from payment of the poll

tax service men and service women who are serving abroad, which includes the 270 of my constituents from RAF Leuchars now serving in the Gulf?

The Prime Minister: The power the hon. and learned Member seeks is already available to local authorities and has been for some time.

York (Visit)

Mr. Conal Gregory: To ask the Prime Minister when he intends to make an official visit to York.

The Prime Minister: I refer my hon. Friend to the answer that I gave some moments ago.

Mr. Gregory: In the hope that my right hon. Friend will shortly—

Mr. Speaker: Order. The question actually deals with a visit to York. However, the hon. Member for York (Mr. Gregory) may continue with his supplementary question.

Mr. Gregory: In the hope that my right hon. Friend will shortly be able to visit the city of York, may I ask him to use this opportunity to praise employee share schemes, particularly those in denationalised companies such as British Telecom and British Rail Engineering? Will he give a warning to the people of York that in the unlikely event of there ever being a Labour Government, they would take away the right—[Interruption.]
The Prime Minister: Certainly, I will be happy to carry a suitable message to York or elsewhere on the value and importance of employee share ownership. I think that that is rightly recognised. One of the clearest indications of the success of the privatisation programme and employee ownership is the disinclination among those once in favour of nationalisation to renationalise that which has been privatised.

Mr. Tony Banks: Will the Prime Minister tell the House what prospects he sees for an early reduction in interest rates—[HON. MEMBERS: "In York?"] Such a reduction will, of course, affect enterprises in York. Will he also tell the House whether it is true that he said that interest rates in York and elsewhere would come down when Chelsea won the league championship? Notwithstanding the excellent result at Tottenham Hotspur last night, is the Prime Minister aware that large numbers of points would have to be taken away from Liverpool and Arsenal if Chelsea were to win and that he would have to make it illegal for any team to beat Chelsea during the remainder of this season? If he takes that very original approach towards the reduction of interest rates in this country—and in York—he will have my wholehearted support.

The Prime Minister: I look forward to the hon. Member's appointment as spokesman for sport in the not-too-distant future. I can only say that much as I look forward to Chelsea winning the championship at some stage, I hope that I shall not have to wait quite that long for a reduction in interest rates.

Business of the House

Mr. Bruce Grocott: May I ask the Leader of the House to tell us the business for next week?

The Lord President of the Council and Leader of the House of Commons (Mr. John MacGregor): The business for next week will be as follows:
MONDAY 28 JANUARY—Second Reading of the Ports Bill.
Motion on the Financial Services Act 1986 (Delegation) Order.
TUESDAY 29 JANUARY—Motions on the English revenue support grant reports followed by motions on the Welsh revenue support grant reports. Details will be given in the Official Report.
WEDNESDAY 30 JANUARY—Opposition day (4th Allotted Day). Until about seven o'clock there will be a debate entitled "The Recession in Industry". Afterwards there will be a debate entitled "Famine in Sub-Saharan Africa". Both debates arise on Opposition motions.
Motions on the Health and Personal Social Services (Northern Ireland) Order and the Health and Personal Social Services (Northern Ireland) (Consequential Amendments) Order.
THURSDAY 31 JANUARY—Second Reading of the Ministerial and Other Pensions and Salaries Bill.
Motion on Members' pensions.
The Chairman of Ways and Means will name opposed private business for consideration at seven o'clock.
FRIDAY I FEBRUARY—Private Members' Bills.
MONDAY 4 FEBRUARY—Until seven o'clock, private Members' motions.
Second Reading of the Coal Mining Subsidence Bill.
Mr. Speaker, the House will also wish to know that European Standing Committee B will meet at 10.30 am on Tuesday 29 January to consider EC Document No. 6459/90 relating to obstacles to takeovers and other general bids; and European Standing Committee A will meet on Wednesday 30 January at 10.30 am to consider EC Document No. 6701/90 relating to emissions of gaseous pollutants from diesel engines.

[Tuesday 29 January 1991

1. (i) Revenue Support Grant Report ( England) 1991–92 (HC 93)
(ii) The Population Report ( England) (No. 2) ( HC 94)
(iii) Revenue Support Grant Distribution (Amendment) Report (England) (HC 95)
(iv) Special Grant Report (No. 2) (HC 96)
(v) Rate Support Grant Supplementary Report (England) 1989–90 (HC 12)

2. (i) Welsh Revenue Support Grant Report 1991–92 (HC 78)
(ii) Welsh Revenue Support Grant Distribution Report (No. 2) (HC 79)
(iii) Distribution of non-domestic rates (Relevant Population) Report for Wales (No. 2) ( HC 80).

European Standing Committee B

Tuesday 29 January 1991

Relevant European Community Documents

(a) 6459/90 Barriers to Takeovers
(b) Unnumbered Company Law

Relevant Reports of European Legislation Committee

(a) HC 11-xxvii (1989–90)
(b) HC 11-xiv (1989–90) and HC 11-xxvii (1989–90)

European Standing Committee A

Wednesday 30 January 1991

Relevant European Community Document

6701/90 Emissions by diesel engined vehicles

Relevant Report of European Legislation Committee HC 11-xxxii (1989–90).]

Mr. Grocott: Can the Leader of the House give us an absolute assurance that any developments in the Gulf will be reported immediately, swiftly and in full to the House, and that, however inconvenient the time, he will ensure that the relevant Minister comes to the House to tell us as much as possible about what is happening?
We are still waiting for a debate on the autumn statement. We need to debate the economy urgently. All our constituents are being affected by the recession, by the record bankruptcies and by rising unemployment, and we need to debate that.
When shall we get the long-promised debate on the Cullen report on the Piper Alpha disaster? It is long overdue.
We shall have only one and a half hours to debate the Welsh revenue support grant. That is inadequate. When will the Leader of the House allocate more time for vital debates on poll tax-related issues?
On Thursday, we shall have debates on pensions and related matters, and on resettlement grants. When will the orders be put before the House? Can the Leader of the House assure us that he has taken careful note of the massively supported early-day motion 299?
[That, in the opinion of this House, paragraph ( 2) of the third Resolution of this House of 19th July 1983, which provides that resettlement grants for former Members should not be payable to a person who has attained the age of 65 years before the dissolution of the present or any future Parliament should no longer have effect, and that the following new provision should be made: (a) That the resettlement grant should not be payable, on the dissolution of the present or any future Parliament, to any person who had attained the age of 65 years at the dissolution of the preceding Parliament; but That (b) regardless of age, a person who has completed a total of 20 years' service as a Member of this House becomes eligible for the grant when it becomes payable under the first paragraph of the third Resolution of 19th July 1983, irrespective of whether that service was continuous, subject to paragraph (3) of the said Resolution.]

Mr. MacGregor: On developments in the Gulf, I made our position clear the other evening in response to some points of order; for the convenience of the House, I shall say it again. Clearly we have every desire to report any major incidents to the House. To apply that to "any developments in the Gulf" would be overstating the case, because it is important that we confine such reports to major changes in the Gulf. We have made it clear from all that we have done so far that we are extremely keen to keep the House fully informed. The hon. Gentleman used the word "immediately". I am sure that he recognises that


it is important that we have knowledge of the facts before statements are made and that we do not rely only on unconfirmed media reports.
I hope that we shall be able to have the debate on the autumn statement in the very near future. As the hon. Gentleman knows, there are other opportunities to debate economic issues, and we are happy to have such debates. We shall have such a debate this afternoon, and there is to be another next week in Opposition time.
I hope to find time for the Cullen report before too long. The House will recognise that there is quite a lot of pressure on business in the House at the moment and that has, of course, been intensified by the need for debates and statements on the Gulf. There are also a number of Second Readings to come forward. However, I am well aware of the House's anxiety for a debate on the report before long, and I recognise the importance of the issue.
The arrangements that I have announced for the Welsh revenue support grant are as normal and, I hope, for the general convenience of the House.
I am grateful to the hon. Gentleman for giving me the opportunity to say that I am anxious that the House should have before it all the information on which to have the debates on pensions and related matters. I have arranged for the draft regulations, which are part of the motion, to be placed in the Vote Office this afternoon, and I will also answer a question this afternoon in response to the right hon. Member for Manchester, Wythenshawe (Mr. Morris), as chairman of the trustees of the pension fund, in relation to a possible reference of some matters to the Top Salaries Review Body. That will be recorded in Hansard so that all colleagues will have the opportunity to look at it before the debate.
The hon. Member for The Wrekin (Mr. Grocott) referred to early-day motion 299. I am aware of the great interest in the matter because there are many signatories to the motion. Representations on this point have already been made through the usual channels. The hon. Gentleman and other hon. Members will have an opportunity to raise the issue in the debates next Thursday. It will be appropriate for me to comment on the early-day motion at that time.

Several Hon. Members: rose—

Mr. Speaker: Order. I remind hon. Members that the object of business questions is to ask about business next week. I shall be grateful if hon. Members will confine themselves to that and ask one question, because we have a very long list of hon. Members who wish to take part in the subsequent debate in which, I am afraid, I shall have to put a limit on speeches anyway. So I ask hon. Members for brief questions, please, to the point and about business next week.

Sir Anthony Grant: I appreciate what my right hon. Friend said about the possibility of raising the question of the early-day motion on resettlement grants of the right hon. Member for Manchester, Wythenshawe (Mr. Morris), but in view of all the other matters to be debated at that time, which are rather different, and in view of the quite unprecedented support for the early-day motion on both sides of the House, would it not be a good idea to have a separate debate on this issue so that the House might concentrate on it and give its views very strongly, which I believe the Top Salaries Review Body wants to hear?

Mr. MacGregor: I do not think that I can do that in advance of next Thursday's debate because I have already announced the business. We ought to see how that debate goes before we consider whether any further time should be given to that subject. But I certainly hope that we make sure that we give enough time for all the issues to be debated next Thursday and certainly for this one to be aired as well.

Mr. James Wallace: I am sure that the Leader of the House will agree that, but for the very serious events in the Gulf, the developments in the Baltic states would be attracting world attention, including the attention of the House. Does he hold out any prospect of an early debate on that subject?
The question of the European Community decision to limit fisheries and for people engaged in fishing to tie up for eight consecutive days a month must be dealt with by secondary legislation. The Government are seeking power to stop people prosecuting their means of livelihood. Will that matter be debated on the Floor of the House?

Mr. MacGregor: On the first point about the Baltic states, of course I understand the concern in the House, and we have already had some statements and opportunities for discussion. I am fully aware of the hon. Gentleman's point, and I think that he put it in the right context. We must keep a watchful eye on the situation and see whether more time for discussing it in the House is required. Obviously I can do that, and I give him that assurance.
On the second point, I cannot give an assurance that the matter will be dealt with on the Floor of the House. It is something that we shall have to look at in due course.

Sir Fergus Montgomery: With reference to the debate on Tuesday on the revenue support grant, can my right hon. Friend say whether there will be a time limit? Many of us are unhappy about the settlement for our areas and would desperately like to speak in the debate. Therefore, may we also have an extension of the debate so that those of us who feel strongly about the settlement can have our say?

Mr. MacGregor: I will consider my hon. Friend's point. Exactly the same point arose on the old rate support grant orders, and there was similar anxiety among hon. Members to speak. On this occasion, we are following the practice that we have followed in the past.

Mr. Robert Parry: Has the Leader of the House read the reports about innocent people having been killed in Iraq, Israel and Saudi Arabia? There have been reports of 40 people in Iraq having been killed. The ambassador told me this week that more than 200 people had been killed and that churches, mosques and schools had been blitzed. Does the Leader of the House agree that the killing of people on both sides will only escalate the war?

Mr. MacGregor: I do not think that that question arises on the business of the House. There are plenty of opportunities for the issue to be discussed, and the hen. Gentleman will have heard what my right hon. Friend the Prime Minister said this afternoon.

Mr. Kenneth Hind: As the Gulf war is probably one of the best covered by the media in our experience, will my right hon. Friend restrain his


ministerial colleagues from coming to the House to make statements on every small incident? Will he restrict statements in the House to major events that affect the British forces, in particular, during the course of the Gulf war?

Mr. MacGregor: I am very grateful to my hon. Friend. I believe that the whole House recognises that at present my right hon. Friends the Foreign Secretary and the Secretary of State for Defence have very heavy responsibilities and work loads. It would be a mistake to ask them to make statements in the House on each and every incident reported in the media, particularly since some are corrected immediately afterwards. I agree with my hon. Friend that it is important, therefore, to concentrate statements on major events that affect the Gulf as a whole. However, these are matters that can be discussed through the usual channels on any occasion.

Mr. Jack Ashley: On the question of telephone communications from forces in the Gulf to their families at home, may we take the matter much further next week than the Prime Minister was able to take it today? It now costs more than £1 a minute to telephone home, and many squaddies simply cannot afford that. British Telecom is helping financially, but the Ministry of Defence should make a significant contribution and help still further. May we please have a statement from the Ministry of Defence next week?

Mr. MacGregor: I am not sure whether an oral statement would be an appropriate method of dealing with that point, but I shall ensure that the right hon. Gentleman's comment is conveyed to my right hon. Friend the Secretary of State for Defence.

Mr. Rupert Allason: My right hon. Friend will be aware of the grave concern in the House and elsewhere about the treatment of British prisoners in Iraq. Notwithstanding what he said a moment ago about the usefulness of statements by Ministers, is he aware of calls for a war crimes investigation unit at the Ministry of Defence? Has he read articles in today's papers stating that such a unit has now been set up at the Ministry? Would this not be an appropriate issue on which to have a ministerial statement as soon as possible at the beginning of next week?

Mr. MacGregor: Clearly the whole House shares the concern about our prisoners of war. I shall ensure that his request is put to my right hon. Friend the Secretary of State for Defence. Again, I am not sure whether that is an appropriate issue for an oral statement, but I shall put the point to him.

Mr. Alexander Eadie: I refer to the question of Thursday's business regarding pensions and redundant Ministers. I hope that the right hon. Gentleman will be properly seized of the point that was made about early-day motion 299, which carries a substantial number of signatures—more than 340. I hope that the right hon. Gentleman will be a little more positive than he was previously about what he proposes to do. There is strong feeling in the House.
Surely the right hon. Gentleman agrees that it would be monstrous if we were to make a decision on ministerial

pensions for Ministers who become redundant and left the matter in abeyance when there is such strong feeling in the House about the motion.

Mr. MacGregor: I do not want to go into the substance of that point today because I do not think that it is appropriate to do so at business questions. I hoped that it was clear from the indication that I gave at the outset, in response to the question of the hon. Member for The Wrekin (Mr. Grocott), that I have already been discussing the matter and that it will be possible for it to be discussed and raised next Thursday. There is an early opportunity for that early-day motion to be aired on the Floor of the House. Of course, I have noted the number of signatories to it.

Mr. Bill Walker: My right hon. Friend will be aware of concern in the House about what could only be described as the lukewarm or half-hearted support that our European partners have given us and the United States in our efforts in the Gulf. May we look forward to the Government considering some mechanism within Europe that will make those who use Gulf oil pay for it so that they can contribute towards the cost of our forces in the Gulf?

Mr. MacGregor: I shall take that point a little more generally and talk about it in terms of contributions to efforts in the Gulf by member states of the European Community and beyond. My hon. Friend knows that my right hon. Friends the Prime Minister and the Foreign Secretary, and in particular the Defence Secretary and the Chancellor, are actively pursuing that point at the moment.

Mrs. Margaret Ewing: I appreciate the seriousness with which the Leader of the House views events in the Baltic states. However, is the right hon. Gentleman aware of the deep desire in the House for an early debate or statement on the matter, not only because of the loss of 19 lives in Latvia and Lithuania, the political and international implications of events there and the threat to the sovereignty of free states, but because decisions will have to be reached about how the European Community views the extending of aid to the Soviet Union against that background?

Mr. MacGregor: I understand the gravity of the matter and the anxiety of the House about it. I have already made that clear. I shall convey to my right hon. Friend the Foreign Secretary, and discuss with him, the points made not only by the hon. Lady but by several other hon. Members. The hon. Lady will be aware that my right hon. Friend has argued that, if repression in the Baltic states continues, the programme of aid to the Soviet Union proposed by the European Council should not be implemented. That was endorsed by the meeting of Foreign Ministers in Brussels this Tuesday. It was agreed that only humanitarian aid should be continued. Therefore, there is no prospect of early agreement within the Council on the Community's proposals before the House. A new proposal on food aid for Bulgaria and Romania is expected shortly. In view of that, a debate next week or in the near future on the precise question of aid would be premature.

Sir Alan Glyn: My right hon. Friend has already given an answer about our


prisoners of war, about whom we are all worried. Will he make sure that, at the end of the Gulf war, atrocities and ill treatment of other prisoners of war and civilians are brought to trial and brought to the notice of the public?

Mr. MacGregor: That matter does not relate to the business of the House, but I shall ensure that my hon. Friend's views are conveyed to my right hon. Friend.

Mr. Frank Haynes: Is the right hon. Gentleman aware that next week a Standing Committee will sit on Tuesday and Thursday to consider the Atomic Weapons Establishments Bill? The Committee began its proceedings this morning. Is he aware that the Government are denying members of that Committee access to certain reports which they need to do their job? We hear about human rights; I am talking about hon. Members' rights. I want the right hon. Gentleman to do something about it. Let us hear from that Dispatch Box that he will do something about it.

Mr. MacGregor: The first thing that I shall have to do about it is look into it. I am not aware of it at present.

Mr. David Wilshire: Notwithstanding the urgent business announced for next week, will my right hon. Friend find time next week—I stress, next week—to allow the House to discuss the Civil Aviation Authority advice on the traffic distribution rules for the south-east of England? I am sure that my right hon. Friend is aware that there is enormous pressure on my right hon. and learned Friend the Secretary of State for Transport to take a decision on that advice before the end of the month. It is far from merely a constituency interest. If there were a free-for-all at Heathrow airport among airlines, it would affect a huge number of people in the Heathrow area and have a knock-on effect for every hon. Member who has any aviation interest whatever. Does my right hon. Friend agree that it is vital that the House gives its views to my right hon. and learned Friend the Secretary of State for Transport before he makes that urgent decision?

Mr. MacGregor: My right hon. and learned Friend has received and is studying carefully the CAA advice on London air traffic distribution. I understand that he intends to reach a decision as soon as possible. I am sure that my hon. Friend and others who have an interest in the matter will convey their views to him.

Mr. James Lamond: What about having a debate on the multi-fibre agreement? Does the Leader of the House remember that we were due to have a debate on it in November and lost it? There was a debate on the GATT negotiations, but most of that was taken up with agricultural matters. It is high time that hon. Members from textiles areas had an opportunity to air their views on the MFA.

Mr. MacGregor: As the hon. Gentleman said, the matter could have been raised in the debate on the Uruguay round and GATT just before Christmas. There will be an opportunity for the hon. Gentleman to raise it in the debate next week, if he so wishes. In view of the pressures on the timetable, I doubt that it will be possible to have a debate on that specific issue in the near future.

Mr. David Nicholson: May we have an early debate on the co-ordination of agricultural and environmental policies in the light of widespread support

in both the farming and environmentalist communities for a single national comprehensive scheme to encourage green farming? Is my right hon. Friend aware that there is a proposal to give the region of the Blackdown hills, in my constituency, area of outstanding natural beauty status? In the light of the Government's disappointment when they asked the European Commission to give that district less favoured area status, my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop), myself and other hon. Members will support the extension of environmentally sensitive area status in that region.

Mr. MacGregor: I shall have to be careful not to engage in a long reply to my hon. Friend—he will be aware that I was much involved in those matters. He will also know that the Government have taken the lead, both in the United Kingdom and in the European Community, in bringing together many agricultural and environmental policies that are in the interests of the countryside as a whole. There are many opportunities to raise general matters, but I cannot promise an early debate in Government time on the specific issues concerning my hon. Friend's county. He will have to seek other ways of pressing the point.

Rev. Martin Smyth: The Leader of the House announced that on Wednesday we shall debate two Orders in Council for Northern Ireland. One of them might be minor and consequential, but the other one is major, dealing with the reorganisation of the health service in Northern Ireland. Can the right hon. Gentleman assure us that we shall have ample time to discuss that order and that the debate will not be curtailed to an hour and a half? This seems to be a further example of Northern Ireland, a s part of the nation, being governed worse than a colony.

Mr. MacGregor: I note the hon. Member's request. 1 t would be for the general convenience of the House to debate the orders together. I shall consider the point that the hon. Gentleman has raised.

Mr. John Marshall:: When does my right hon. Friend expect to be able to announce the Second Reading of the War Crimes Bill? Does he agree that, if we are not going to prosecute Iraqi war criminals, we should be willing to prosecute those war criminals who are resident in the United Kingdom?

Mr. MacGregor: I cannot say at this stage, but it will not be next week.

Mr. Dennis Skinner: Will the Leader of the House have a look at the early-day motions dealing with democracy in Kuwait, bearing in mind the fact that the Crown Prince and the royal family of Kuwait are gallivanting round the casino dens and racecourses in Europe—one of them has a private plane that sends him food from Harrods several times a week—while British soldiers look like being slaughtered in the desert? Is that not—

Mr. Speaker: Order. Did not the hon. Gentleman hear me say that business questions should be confined to what is happening next week and should not relate to general matters?

Mr. Skinner: We ask business questions about what is happening next week and what we want to happen next week.

Mr. Speaker: The hon. Member must ask for a debate.

Mr. Skinner: Absolutely. There are three early-day motions on the Order Paper dealing with the need for a debate about the lack of democracy in Kuwait and the fact that the Crown Princes are running the country without any democracy. One of those princes has a private plane sending food from Harrods several times a week while British troops are being slaughtered. Many other members of the royal family are at gambling dens, casinos and racecourses, and will not even put on a uniform to fight for their own country.

Mr. MacGregor: The aims for which the British forces are currently engaged, as part of the allied forces in the Gulf and in enforcing a United Nations resolution, have been debated in the House on numerous occasions. My right hon. Friend the Prime Minister and others have made clear what those aims are.

Mr. Ron Leighton: Will the Leader of the House arrange for an early debate on London? In previous Parliaments, we had an annual debate on London. We have the only capital city without an elected government, with an unsatisfactory cat's cradle of unaccountable quangos and Government Departments to run the city, and there is no proper democratic oversight of our affairs. This should be debated in the House. Could the Leader of the House arrange for an early debate?

Mr. MacGregor: I cannot now promise an opportunity for debating the subject in Government time, but the hon. Member will know that there is a considerable number of other opportunities available to him and his hon. Friends to raise the matter in the House if they wish to do so.

Mr. Harry Ewing: The Leader of the House heard the reply that the Prime Minister gave to the hon. and learned Member for Fife, North-East (Mr. Campbell), who asked whether service men serving in the Gulf, especially from RAF Leuchars, would be relieved of the poll tax. The Prime Minister said that there was already provision for this. I know that the right hon. Gentleman would not deliberately mislead the House, but, regrettably, I must tell the Leader of the House that that reply was not accurate.

Mr. Speaker: Order. It might not be, but could the hon. Member ask for a debate next week?

Mr. Ewing: Against that background, will the Leader of the House arrange for the Secretary of State for Scotland to come to the House next week and explain where in the legislation implementing the poll tax for Scotland there is provision to relieve service men of paying poll tax? As that is so important, I would even settle for a reply to a planted question.

Mr. MacGregor: I shall discuss the matter with my right hon. Friend the Secretary of State for Scotland.

Mr. Dafydd Wigley: In view of the debate that the Leader of the House has announced for next Tuesday night, on the revenue support grant formulas for England and for Wales, will he confirm that they will be relatively narrow debates and will not take in the broad purview of what the Secretary of State for the Environment intends to do with the community charge? That is of considerable importance, because the tax is enormously unpopular. If that is the case, can the Leader

of the House arrange for an early debate on the broad direction of Government thinking about the future of this charge, so that other ideas can be taken on board at an early stage before conclusions are reached?

Mr. MacGregor: My righ hon. Friend the Secretary of State for the Environment has already made it clear that he is prepared to take on other ideas, and he is engaged in discussion on this with minority parties and others. It is not necessary to have a debate to achieve that purpose. I confirm that the hon. Gentleman is right to say that the debate next week will be confined to the revenue support grant orders. Nevertheless, it is a major issue and one on which many hon. Members would wish to speak. Therefore, it is right to give a whole day to the debate.

Mr. David Winnick: What arrangements have been made for the Home Secretary to make a statement next week so that we can make to him the point that, while every effort must be made to protect the country from terrorism, certainly by those acting at the behest of the criminals in Baghdad, every effort should also be made to protect the innocent? Is the Leader of the House aware that some of us are worried, recognising as we do the matters involving national security, that long-standing opponents of Saddam Hussein, some of whom have fled from his terror, could be in danger of being deported? This matter requires a statement from the Home Secretary.

Mr. MacGregor: The hon. Gentleman has made his point. He will know that there is a procedure for allowing three visitors to examine individual cases if there is an appeal to them, and that allows all aspects to be examined. I know that hon. Members are taking up some cases directly with my right hon. Friend the Home Secretary. I do not know whether this is necessarily a matter for a general statement next week, but I shall draw to the attention of my right hon. Friend the points made by the hon. Gentleman.

Mr. Keith Vaz: Will the Leader of the House arrange for a statement next week about the question of compensation for nuclear test veterans? He will know that I have raised the case of my constituent John Hall who is dying of leukaemia and who, on Thursday of this week, had a blood transfusion. If the Government take a long time to sort out the question, some of the veterans who are claiming compensation may not be alive to hear the news.

Mr. MacGregor: I know that this matter has been raised in the House on a number of occasions. I see no possibility of a debate next week.

Mr. Doug Hoyle: Will the Leader of the House ask the Secretary of State for Education and Science to make a statement next week on the proposed closure of the SERC nuclear structure facility at the Daresbury laboratories in Warrington? Does he realise that it is the leader in this field and closure of it will affect research not only at Daresbury but at many universities? It will also affect the Eurogam programme, in which we are engaged in conjunction with the French. Does he realise that this facility is closing despite—or because of—a visit earlier this year by the former Prime Minister, the right


hon. Member for Finchley (Mrs. Thatcher)? The right hon. Lady had assured many other plants that they were leaders in their field and had a future.

Mr. MacGregor: I shall draw the hon. Gentleman's point to the attention of my right hon. Friend. I do not think, however, that it merits a full statement next week.

Mr. Bob Cryer: May we have a statement next week on the breaches of the embargo on the supply of arms to Iraq? I am thinking particularly of German firms and of weapons for use in chemical and biological warfare. This is a very serious matter. Does not the right hon. Gentleman realise that arms manufacturers are licking their lips in anticipation of pumping into various countries yet more billions of weapons that carry the tag "Gulf tested"? Would not that be an odious affront to the troops who are risking their lives in the field? Is it not time for the Government to provide some procedures to stop the odious arms trade after this conflict so that such a thing is unlikely to happen again?

Mr. MacGregor: There are many opportunities to raise issues of that sort. Indeed, one such issue was raised this afternoon. I do not think that there is a case for a specific statement next week.

Mr. Tony Banks: May we have next week a debate on the conduct of the press? I hope that the Leader of the House has had an opportunity to read the Official Report of last night's Adjournment debate, in which my hon. Friend the Member for Birmingham, Ladywood (Ms. Short) raised the question of the obscene campaign against her by the News of the World and, in the past, by The Sun. Those of us who, whilst dedicating ourselves to the welfare of British troops in the Gulf, have called for peace initiatives have been branded by one of the gutter newspapers as "treacherous swine". May we have an early debate so that it may be made quite clear to newspaper editors, especially at this time, that in a democracy those who take a contrary stand do not deserve to have their private lives crawled over by nasty journalists or to be branded as traitors when they stand as squarely as anybody else in support of our troops in the Gulf?

Mr. MacGregor: As the hon. Gentleman has said, there was a debate last night on certain aspects of this matter. As for his second point, although I totally disagree with his general views on the Gulf, I happily reaffirm that it is essential to our parliamentary democracy that hon. Members are able to express their views freely.

Mr. Max Madden: May we have next week a statement about procurement policy in relation to British forces serving in the Gulf? I put this question on behalf of a constituent of mine who has two sons serving there with the British Army. He was greatly distressed when he received from one of his sons a letter saying:
The boots we have been issued with are useless. They are too short, and the sand gets in the top of them, giving us foot problems. Could you buy me a pair and send them over?
At the weekend that father spent £60 on boots to send to his two sons.
I have been in contact with the Ministry of Defence and have spoken to a senior Minister twice this week. The Minister confirmed that there is a problem. Proper desert boots are now being sent to the Gulf. This House and those who are related to people serving in the Gulf have a right to ask why is it that desert boots were not available

from day one. Why is it necessary for our boys in the Gulf to buy proper boots privately? Are all those who need proper desert boots now in possession of them?

Mr. MacGregor: Obviously I cannot comment on the individual issue to which the hon. Gentleman has referred, as I do not know the details or the background. Members of Parliament have other means of pursuing these matters, as, indeed, the hon. Gentleman did. This is just the sort of subject on which it would not be appropriate to make a statement every day. Indeed, it is the kind of case that I had in mind when I said that it would not be right to debate daily particular aspects of the Gulf. If the hon. Gentleman feels so strongly, I hope he will reconsider the decision he took when he voted earlier this week.

Mr. Gavin Strang: Why are the Government so severely curtailing opportunities to debate the Gulf war? Is it not disgraceful that since the war broke out we have had only a single day's debate on it? Is the Leader of the House seriously proposing to the House this afternoon that not one day of Government business next week will be allocated to a debate on the Gulf war?

Mr. MacGregor: I utterly reject the view that we have been depriving the House of the opportunity to discuss these matters. We have had two debates within a short period, we have had a number of statements and private notice questions, and we have had Question Time. I have made it clear that we are happy to keep the House fully informed and will make statements as appropriate, and that may well be the case next week. But I do not think that it is the mood of the House at the moment that we should have a debate on the issue every week. We must judge as and when the need arises, but I stress again that, as I think most hon. Members recognise, we are making every effort to keep the House fully informed and to debate the issues.

Mr. Greville Janner: I welcome the prospect of food aid to Romania and Bulgaria, but surely we should have a full-scale debate on the effect that the Gulf war has had on countries such as those? I refer in particular to the wretched winter which is being suffered now by Bulgaria's people, who are without adequate fuel, heating and other essentials of life. It is about time that the United Kingdom provided help to those countries, particularly as Bulgaria's miseries have been brought about entirely because of its robust support of the embargo that we asked it to join us in imposing.

Mr. MacGregor: Clearly we cannot have debates every week on a number of major issues that concern all of us. That just is not possible. But I recognise the hon. and learned Gentleman's anxiety about the matter and, as I said earlier, a new proposal on food aid for Bulgaria and Romania is expected shortly.

Mr. Ken Livingstone: May we have a debate next week, or at the very least a statement, so that the Home Secretary can explain to the House on what grounds he has authorised the deportation of my constituent, Mr. Abbas Cheblak, a respected campaigner for human rights in Iraq and throughout the middle east, a known pacifist, who has lived here for 16 years and who has two children of British nationality? The Home Secretary has refused to speak to me by telephone and has refused a meeting with me on the subject.

Mr. MacGregor: I shall draw the hon. Gentleman's point to my right hon. Friend's attention.

Mr. Andrew Welsh: Is the Leader of the House aware that farm incomes in the livestock sector have now reached the lowest level since the second world war which, allied to rising costs, will lead to a brutal restructuring of the industry through bankruptcy? Will the Minister of Agriculture, Fisheries and Food at least make a statement to the House; or at best, given the troubles which affect every sector of agriculture, may we have a full-scale and urgent debate on the future of British agriculture?

Mr. MacGregor: We had agriculture questions this afternoon, and I am sure that my right hon. Friend made the point then that he is about to embark on discussions on possible Community proposals in relation to agriculture. I understand that no specific proposals have been put forward yet, only some tentative ideas about what they might be, and the Council of Ministers will be meeting again shortly—I think the week after next—to discuss those matters. We need to keep in mind when would be an appropriate time for a statement or a debate.

Mr. Jeremy Corbyn: Will the Leader of the House speak urgently to the Home Secretary on the matters raised by my hon. Friends the Members for Walsall, North (Mr. Winnick) and for Brent, East (Mr. Livingstone)? The situation is extremely serious. A large number of people of Palestinian or Iraqi background have been taken into custody, held for up to 19 hours a day in cells, denied proper recreational or visiting facilities and now, we hear yesterday, have been denied the right of legal appeal other than through an internal tribunal.
Will the right hon. Gentleman ask the Home Secretary to make a statement to the House on the number of people who have been taken into custody and why, and also why he is refusing to meet hon. Members who wish to represent their constituents in this serious matter at a serious time? Civil liberties are at stake.

Mr. MacGregor: I have already made it clear that there are clear procedures for dealing with such matters, and the majority of people would feel that it was right for the Home Secretary to be taking the action that he is taking. I have already said that I will draw the points raised to my right hon. Friend's attention.

Economic and Monetary Union

[Relevant documents: Minutes of Evidence taken before the Treasury and Civil Service Committee on 25th July 1990 on Enonomic and Monetary Union ( House of Commons Paper No. 620 of Session 1989–90).

European Community Document SEC (90) 1659 on economic and monetary union and the unnumbered explanatory memoranda, submitted by Her Majesty's Treasury on 23rd April and 5th November 1990, describing Commission reports on the economic rationale and design of economic and monetary union and the potential benefits and costs of economic and monetary union.

Government's proposed treaty provisions for economic and monetary union—beyond stage 1, published on 8th January 1991].

Motion made, and Question proposed, That this House do now adjourn [Mr. Nicholas Baker.]

Mr. Speaker: Before I call the Chancellor of the Exchequer, may I say that a large number of right hon. and hon. Members wish to take part in this important debate? I propose to put a limit of 10 minutes on speeches between 7 o'clock and 9 o'clock, but I ask right hon. and hon. Members who are called before then to bear that limit in mind.

The Chancellor of the Exchequer (Mr. Norman Lamont): Questions of monetary union, parallel currrencies, the hard ecu, economic convergence and the European monetary fund may sound deeply impenetrable and technical but they are none the less matters of profound economic, political and constitutional importance to the House.
This Parliament has a deep and legitimate interest in the issues raised by economic and monetary union. That is one reason why the Government have made it plain to our European partners that we cannot accept any changes to the treaty of Rome which would bind us to move to a single currency or a single monetary policy without a separate decision by the United Kingdom Government and Parliament. That will be a question that only future Parliaments can decide. That was the position expressed by my right hon. Friend the Member for Finchley (Mrs. Thatcher) the former Prime Minister, and it remains the policy of the Government today.
I should like, if I may, to set out to the House first, what our proposals are; and secondly, the arrangements for the organisation of the intergovernmental conference for European monetary union, EMU. Thirdly, I should like to go over again some of our reservations about the plans put forward by Mr. Delors.

Mr. Peter Shore: We have before us a clutch of documents, as detailed on the Order Paper. Indeed, a large number of issues are covered. Can the right hon. Gentleman explain why, given the obvious relevance, we do not have before us the Commission's draft treaty on economic and montary union, dated 15 December 1990? It is by far the most authoritative and up-to-date version of what the Commission proposes and what most or our European partners are likely to accept. In addition, why do we not have the draft statute for the European system of central banks and of the European central bank, sent to the intergovernmental conference by the committee of central bank governors on 27 November?


Those are the most definitive documents, yet they are excluded from the clutch of documents to which the attention of the House has been drawn. Can the Chancellor explain?

Mr. Lamont: Those documents are important to the debate, and I shall certainly be talking about them.
To go back to the point which I was making, the impetus for European monetary union dates back to the 1960s. The Werner report of 1970 set out a three-stage process for greater economic and monetary integration. That was never implemented because, to be frank, the economies of member states were not remotely ready for it.
However, the Delors committee's report two years ago revived the issue and brought it to the forefront of the European debate. The report defined EMU as a once-and-for-all locking of exchange rates, leading to the adoption of a single currency, with a single monetary policy and a single European bank; and it set out a three-stage process to get there, laying down strict conditions which would first need to be met.
Much of what was defined as stage 1 by the report was very welcome to the Government. Indeed, in some areas we have led the way. They include the completion of the single market and a single financial area, free movement of capital throughout the Community and a strengthened competition policy. All these steps continue the process of economic integration by which both the Community and the United Kingdom economy have benefited greatly over the past two decades. Monetary integration at this stage is merely the logical development of the single market.
But we part company with the Delors report over its centralising, prescriptive approach to developments beyond stage 1, especially the proposal that 12 member states, in their current state of economic development, should commit themselves today to move to a single European currency. The Government believe that it would be wrong to make such a commitment. Profound issues of sovereignty are involved, and apart from that the Community is a very long way from being ready for a single currency, as I shall explain to the House in due course. It would be foolish to bind ourselves now to a rigid, inflexible structure for monetary union when there are huge uncertainties about what lies ahead.
We believe that the right way forward is to build on our experience of economic and monetary integration to date, and to take the practical steps that we can all agree on towards closer integration. In our view, monetary union should not be equated with a single currency; it is a process. As we go further down this road, our experience will increase and we shall be better able to take decisions about the future. But we should not try to prejudge questions to which we cannot possible know the answers today.
The British Government have therefore concentrated on the immediate steps beyond stage I . They were the first Government to put forward proposals for stage 2, and these remain the only substantive proposals for stage 2. The proposals involve the creation not of a single but of a common currency; that is to say, a currency that would exist alongside or parallel with national currencies rather than replace them. This common currency, the so-called hard ecu, would be a genuine, new, international currency. The ecu would no longer be, as it is now, a basket of other currencies—that is to say, a weighted average—but would exist in its own right and be a currency within the ERM.
It is called the "hard" ecu because it would never be allowed to devalue against other Community currencies and would therefore be an attractive store of value for use by businesses and individuals across the Community. Banks would be able to take deposits and issue loans in this currency.

Mr. Anthony Nelson: I am obliged to my right hon. Friend for giving way and I am listening with care to what he says. He has just said that the intention was that the common currency would not be allowed to devalue against individual state currencies. If it is intended at some stage in the future that each of our national currencies will be relatively fixed to a new common currency, surely the two will become interchangeable, and the difference between "common currency" and "single currency" will be essentially semantic.

Mr. Lamont: With great respect to my hon. Friend the Member for Chichester (Mr. Nelson), that does not follow. What would follow is that the hard ecu would be the hardest currency within the mechanism, and if one currency was revaluing upwards all the time it would become more like that currency, because it is, as I said, not a weighted average as is the existing basket. So I do not think that it carries one forward inevitably in the way described by my hon. Friend.
In the first instance, the hard ecu would be used largely for business purposes and for financial transactions, although it might also have attractions for individuals as a store of value. As a result, the hard ecu could, over time, evolve towards a single currency. But that, as we have always made clear, is a decision not for now but for the future, and one that would be debated fully in the House.
At the same time we would create a new institution, the European monetary fund. It would be responsible for issuing the new currency in exchange for national currencies; and it would be responsible for operating in the money markets, setting hard ecu interest rates. Both the hard ecu and the European monetary fund would come into being at the start of stage 2.
Our proposals have stimulated debate about the alternative of a common as opposed to a single currency. Opposition Members have tried to ridicule our proposals, but they have attracted an increasing amount of interest in Europe. For instance, Mr. Beregovoy, the French Finance Minister, said recently:
It would be better to increase progressively the credibility of the ecu rather than to bring it in by decree on the first day of stage 3. I approve entirely of the idea of an ecu whose definition will be strengthened and whose use on the markets will be developed.
These wise words echo our own approach, but Mr. Beregovoy has not been alone. Other countries have expressed interest and Spain has incorporated something very similar in its own plans for stage 2. The chief executive of the Federation of German Industry, the equivalent of the Confederation of British Industry, Herr von Wartenberg, described them as
An interesting alternative to the rather more centralist approach in the Delors report",
and said that they
should therefore be examined free of bias.
This growing interest is not surprising, because our proposals have a number of district advantages. First, they provide a way in which all 12 countries can move together


as a Community. Secondly, they provide for the creation of a genuinely European currency and a European monetary institution at the beginning of this process.
Thirdly, they reinforce the pressures in the ERM for all member states to converge on the lowest inflation rate in the Community. If a Government depreciate their own currency, they might find that businesses were turning increasingly to the hard ecu. As the hard ecu would not be permitted to devalue within the ERM and the monetary fund would set interest rates to achieve that, it would therefore provide a secure anchor for the other ERM currencies.
Our proposals would work with the market, allowing individuals and firms to use the common currency, in the form of the hard ecu, whenever they wanted to do so, but it would not be forced upon them. Nonetheless, our experience with the existing ecu suggests that a common European currency could have considerable attractions. The Institute of Directors has said that it believes that the introduction of the hard ecu as a common currency
would be of immediate benefit to business and individual travellers".
We do not plan to grant the hard ecu legal tender status in the first instance. Nonetheless, as we have made clear, if, over time, people saw advantages in that, the Government could consider it.

Mr. Quentin Davies: Would my right hon. Friend say why he does not envisage that the hard ecu will be given legal tender status?

Mr. Lamont: I do not think that that is necessary. As I am sure my hon. Friend knows, legal tender is a highly complex subject. I am sure that it will not surprise my hon. Friend, as he is well informed in this matter, but all the notes in circulation in this country do not come within the definition of legal tender. The currency could evolve and could be used increasingly without that legal change. As I said, there could—as opposed to would—come a point when it might be considered.
I have outlined our proposals and why we believe that they represent the best way forward. Now the business of negotiation with our partners in the Community is under way, and I should like to explain to the House how the intergovernmental conference will be organised, and set out the approach that we intend to take in discussions and our objectives during the months ahead.
The conference has been called to amend the treaty in order to facilitate the later stages of EMU. The agenda is decided by the IGC itself. Ministerial meetings—at which I or the Financial Secretary will represent the United Kingdom—will take place once a month, with officials meeting once a fortnight. I attended the opening session of the IGC last month, and the next ministerial meeting will take place in four days' time.
The conference will be chaired by the presidency—the Luxemburgers in the first half of 1991 and the Dutch in the second half. We shall keep the House in touch with progress as the conference continues. No date has been set for the conclusion of the conference, but at the European Council in Dublin last April it was agreed that member states should ratify treaty amendments by the end of 1992.
The opening session last month was encouraging. Every member state expressed its wish for the IGC to reach an agreement acceptable to all 12 members. We agreed that

the main objective should be price stability. On other issues, such as the need to avoid excessive budget deficits, we also found a lot of common ground.
Of course, there are several issues on which the positions of member states differ substantially. That is hardly surprising when one considers the huge complexity of this subject and the uncertainty that there must be about the consequences of EMU. But the gap between us is not unbridgeable. As Finance Ministers get down to the detailed, practical negotiations that are required to make progress, I am confident that problems can be resolved constructively. Far too much of the debate in the Community so far has focused on the abstraction of a single currency, but I am glad to say that discussion is now turning towards the immediate practical issues of what we do next. It is clear that the United Kingdom has been instrumental in influencing that change of direction.
Earlier this month I made available to the House texts for treaty amendments which showed how our proposals could be framed in treaty language, and how the European monetary fund would operate. These have been tabled for discussion at the intergovernmental conference. If we compare our texts with the Commission's, it can be seen that there are clearly some differences and some similarities between the aims and operations of the fund and the proposed European central bank.
We differ on the imposition of a single monetary policy and a single currency, which this Government cannot accept and have not provided for in our proprosals. The European monetary fund is not put forward as a central bank, for the very simple reason that we do not favour a single currency. The function and purpose of a central bank is to issue a single currency. We agree with the Commission on the need for the new monetary institution in the Community to have a two-tier structure of governing and executive boards. Therefore, we have incorporated those provisions in our treaty texts which are along the lines of those proposed for the European central bank. The texts are designed specifically to meet two of the main worries that have been expressed about a common currency.
The first worry has been that a common or parallel currency might prove inflationary. As the argument goes, it might add to the money supply of the Community. As I have explained on several occasions, our proposals are designed to avoid that drawback and indeed to operate specifically as a counter-inflationary discipline. The European monetary fund's operations would not add to the Community's money supply because any hard ecus issued would have to be exchanged for national currencies. Anything that the fund added to the total money supply in the Community would be matched by what it took out.
In addition, the EMF would have powers to discourage national Governments from pursuing loose monetary policies. If a Government printed too much money and businesses and individuals came to believe that national currencies were losing their value, they would be able to exchange them for the new currency. The monetary fund would begin to build up an excessive stock of national currency and beyond a certain limit would require the national Government to repurchase it out of its reserves. That would directly counteract the excessive growth in money supply and would be a heavy penalty on the country in question.
The second worry has been that the creation of a 13th currency would somehow confuse responsibility for


monetary policy. Our proposals provide a clear division of responsibilities. The job of the EMF would be to manage the new currency, preventing it from ever devaluing against other Community currencies. National monetary policy would remain in the hands of national Governments with decisions taken at national level.
Now that we are in negotiation, we shall be arguing for our proposals but also seeking the views of other member states on specific questions where we have not yet taken a firm decision—for instance, how the monetary fund might best be made accountable to Finance Ministers, national Parliaments, and perhaps also to the European Parliament. This is a subject on which there is a wide range of views held among the other member states and many of the views held by other states will not be easily reconcilable with each other. The same may be true in regard to hon. Members on both sides of the House. The monetary fund would be a new institution, and it is by no means obvious how we could best ensure its accountability, so we shall listen with care to the ideas and views expressed by our partners, as well as those advanced during today's debate.

Mr. Tony Favell: My right hon. Friend has mentioned the wide divergence of view among hon. Members of all parties and, indeed, throughout the country. Can he tell us whether the Cabinet now has an ultimate goal? We hear a good deal of Euro-speak about commonality, convergence, gradualism and unity. Where is all that unity going to lead us? What is the Government's ultimate goal?

Mr. Lamont: I sympathise with my hon. Friend's feelings about Euro-speak and jargon, although I fear that a certain amount of such language is unavoidable. I have at least tried to explain what each word means when I have used it for the first time, but it is almost impossible to make a speech Matthew Parris-proof.
Our objective is to leave the realisation of monetary union, if it happens, to an evolutionary approach to be determined by markets, individuals and businesses. We are not prepared to sign up to move to a single currency with a single central bank; our objective is to negotiate that outcome successfully.

Mr. Shore: I promise not to interrupt the right hon. Gentleman a third time.
The right hon. Gentleman said that he thought it possible to reconcile our proposals, which he has described, with the approach of the majority of the Community partners who are now meeting, or about to meet, in the IGC. He also told the House very clearly that we could not accept any commitment to a single currency at this stage. Article 2 of the draft treaty of the Commission—the first substantive article in the treaty, which I wish were among the papers before us—states:
The Community shall have as its task progressively to achieve economic and monetary union, which will be based on a single currency, the ecu".
Is that article to be deleted from the draft treaty, or are we discussing complete unrealities—measures that we consider sensible, but on which the Community has already made its decision, with the aim of going much further?

Mr. Lamont: The right hon. Gentleman is referring to the Commission's proposals. I am talking about an intergovernmental conference at which both we and the Commission will present proposals, and at which we shall

negotiate. We are trying to get our objectives embodied in treaty amendments. In due course, there will be other texts from the French, and, I believe, from the Spanish and the Belgians as well. There will be a good deal of cross-party and intergovernmental discussion about the different ways in which different amendments may be reconciled: that is what the conference is all about.
Now that we are in negotiation, we shall be arguing for our proposals, but also—as I have said—seeking the views of other member states about specific questions on which we have not yet taken a firm view, such as the accountability of the European monetary fund. Let me make it plain, however, that a willingness to discuss and adapt our proposals does not mean that we have modified or abandoned our concern about a single currency: we are not about to withdraw the objections that we have expressed all along to the original Delors proposals.
Our overall objective for the IGC is twofold—to reach an agreement with our partners, but one that meets our own concerns by fully respecting the sovereign rights of this Parliament. That means keeping open the options not just for this Parliament, but for future Parliaments. We shall be looking for a treaty that does not impose a single currency on the United Kingdom; for developments beyond stage 1, which incorporate our ideas for a common European currency and for a European monetary fund; and for continued national responsibility for the main elements of budgetary policy.
The Delors report recommends setting binding rules on the size of budget deficits which member states would be allowed to run. This would mean that the House of Commons would no longer be sovereign on matters of taxation or public expenditure or both—a position that we could not accept. That objection aside, binding rules are neither necessary nor practical; excessive budget deficits are certainly something that we should try to avoid, but how that is done and what constitutes an excessive deficit can be judged only on a case by case basis.
National Governments can and should be left to make those decisions within the disciplines created by the financial markets. Those disciplines will be effective provided that the markets know that Governments are on their own; there is no Community guarantee of their debt and that they will not be bailed out by the Community if they get into trouble. All that is required to make that plain is a rule against financing the deficit by printing money and an explicit prohibition of bail-outs by the Community. On this key issue, I am pleased to report, we are among a clear majority in the Community.
One might ask what approach the opposition would take to EMU and to negotiations with our partners? Hon. Members on this side of the House will not be alone if they are somewhat unclear about the Labour party's policy, and not least, as usual, about the approach by the Leader of the Opposition himself. On 2 November last year, the Leader of the Opposition explained to the listeners of the "Today" programme what accepting a single currency meant to him. He said:
You don't have to have the abolition of the pound; you have a pound with its ecu value and everybody can go on using whatever currency they want so long as it is in stipulated ecu value.
When asked whether it mattered if we had a common or single currency "so long as the Queen's head is on it", the right hon. Member beamed:
That's the whole point Leon Brittan and Jacques Delors and everybody else has made and they're right".


As usual, it was the right hon. and learned Member for Monklands, East (Mr. Smith) who set about the damage limitation exercise, as he so often has to. On 7 November he told The Daily Telegraph:
What Neil was trying to make clear was that it was rather a foolish view to say the only issue was whether the Queen's head appeared on the currency or not".
That was a heroic, but slightly unconvincing, attempt, to save the day.
In November, Labour's national executive committee published a paper entitled "The Intergovernmental Conference on Economic and Monetary Union". This states that, since our Community partners have made clear that their desire is to move towards full monetary union and the establishment of a single currency, Labour believes that
it would not be in the national interest if Britain allowed itself to be excluded from such developments".
In December, in another interview on "Today", his favourite programme, the Leader of the Opposition said:
The 11 other countries are unanimous"—
about their desire for greater economic and monetary integration—
Now the choices therefore available are to go and turn our backs on that, which would be foolish, or to be involved in it.
I do not wish to be unfair to the Labour party, but it is not being at all clear. I put it no more strongly than this: the implication seems to be that the Labour party would be prepared to sign up to a single currency if sufficient of the other members of the Community think that that is a good idea. I very much hope that when the right hon. and learned Gentleman speaks on this matter he will make his position crystal clear.
Our position is that we will not commit ourselves to move to a single currency. Our proposals are designed to safeguard Britain's interests. Other countries are interested in our proposals, but the task of persuading our partners is a difficult one. It is not always made easier by the Leader of the Opposition denouncing our proposals when he is abroad. We do not hear of President Giscard d'Estaing coming to this country and criticising his country's proposals; he stands up for French interests.

Sir Russell Johnston: Before the right hon. Gentleman leaves the question of the single currency and the hard ecu, would he simplify one basic point which I think I understand correctly. The hard ecu is not a transitional arrangement and the Governnment do not ever wish to move to a single currency. Is that the approach?

Mr. Lamont: I have already made it clear this afternoon that the hard ecu could evolve if markets and individuals want that. That would be a decision to be made by a future parliament and a future Government. This Government reserve decisions on moving to a single currency for this House. Opposition Members seem to be prepared to rush headlong into agreements in Europe without having a clear idea of what these will mean for Britain and without the slightest regard for the sovereignty of Parliament.
Unlike the Opposition, the Government have always objected to the Delors prescription for EMU and the imposition of a single currency, and we will continue to oppose it. Let us just consider what the proposal would

mean. Overnight, 340 million people would accept a single currency in a Community in which income per head varies from £9,400 in Germany to £4,500 in Greece.
Income is only one way of measuring the diversity of economies in Europe. Let us consider, for example, the following differences between member states: inflation ranges from 2 per cent. to 23 per cent; short-term interest rates are 9 per cent. at the bottom end and 19 per cent. at the top; unemployment, an important indicator of labour market flexibility, ranges from 1 per cent. in Luxembourg to 16 per cent. in Spain; and budget balances range from a surplus of 3 per cent. to a deficit of 19 per cent. of gross domestic product. As long as such wide divergences exist, a commitment now to move to a single currency would be a massive leap in the dark.
By trying to move prematurely to monetary union, we would run very serious risks. The dangers of forcing the pace have been amply demonstrated in Germany. Karl Otto Pohl, the director of the Bundesbank, has described Germany's experience as "a drastic object lesson" of the need for prior convergence before establishing a currency union. Reunification there has meant the rapid merger of two very different economies. The short-term consequences are a huge rise in the German budget deficit and rising unemployment in eastern Germany, but for the rest of the Community their experience is salutary. It shows the strains and tensions set up by moving to currency union before there is proper economic convergence. In the case of Germany one strong currency and one strong economy effectively took over those of a weaker neighbour. How much greater would those strains and tensions be if 12 very different states with different economies were now to adopt a single currency?
The consequences could be very difficult indeed. It is possible that to ease the pain of currency union, there would be calls for large sums to be spent in the poorer regions. A programme of transfers—potentially huge—would be very difficult for the more prosperous countries to take. Even on present policies, by 1993 we will be funding a structural policy costing between £11 billion and £12 billion each year.
A second possible outcome is that the European central bank would prove unable to live up to the high standards of the Bundesbank in reducing inflation. Instead of promoting convergence, monetary union would lead to just the opposite: higher inflation and a poorer economic performance. The truth is that the full economic consequences of the Delors prescription are highly uncertain. They would take a long time to emerge and would be extremely difficult to forecast. The currency union on this scale of individual countries envisaged has no serious precedent that I have been able to find. Fixed exchange rate systems like the gold standard, Bretton Woods and, indeed, the EMS are not the real precursors of EMU. A common feature of all those arrangements was that there was no centralised monetary policy and no single central bank governing all the participants.
It is for those reasons that we have put forward our own proposals, which recognise the uncertainties involved. We want to listen to our partners at the IGC and to try to find ways of meeting their concerns as well as our own. We hope and expect that the IGC will recommend a set of treaty amendments acceptable to all member states which we can bring to this House for approval.
At the same time, we cannot accept a treaty that would bind us to move to a single currency or to a single


continental monetary policy without a separate decision at the appropriate time by the United Kingdom Government and Parliament. That will be a question for future Parliaments to decide.

Mr. Michael Grylls: Does my right hon. Friend agree that all the talk of monetary union at so early a stage is a real danger to the completion of the internal market, which is a real thing that people—and certainly business people—want to see happen? In Europe, it takes weeks to transfer money, whereas in our own market it is instantaneous. Such hurdles and obstacles have to be overcome. That is more important and practical than dreaming about monetary union which, as my right hon. Friend the Chancellor has said, cannot take place here.

Mr. Lamont: My hon. Friend has a good point. Many aspects of the single market still have to be developed. Our financial institutions and insurance companies feel strongly that we do not yet have an internal market in many areas of financial services. I should have thought that that was relevant to the debate on monetary union.
This debate will show that economic and monetary union raises issues of the greatest importance for this country. There are those in the Community who seem ready to bind themselves to make the move to a single monetary policy and a single currency. As we have made clear, while we are ready to respond to the other member states in the Community, we believe it both unnecessary and premature to ask this House to take binding decisions to move to a single currency.
We have said that our approach, or some development of it, could lead to a single currency. Although we do not rule out a single currency for ever—if that were what peoples and Governments so wished—we cannot accept a commitment to move to a single currency or a single monetary policy without a separate decision at the appropriate time by this House. It is on that basis that we will carry forward our negotiations in the intergovernmental conference.
In the light of those assurances, I ask the House to commend the Government's approach to these complex issues and, especially, our emphasis on practical steps which will promote economic and monetary convergence. I also ask the House to endorse the Government's handling of the intergovernmental conference that lies ahead.

Mr. John Smith: Despite what the Chancellor of the Exchequer said in his closing sentences, this is a debate on the Adjournment. We are not asked to commend anything; we are asked to make contributions to the debate. It is understandable that the House, like the nation, has other things on its mind this week. However, our natural tendency to concentrate on the Gulf should not lead us to neglect the proper duty of Parliament to scrutinise the actions of Government on other major issues, or to underestimate the importance of this subject.
The debate also offers the opportunity for hon. Members of all parties, and with a wide variety of views on what the future economic and monetary relationships in the European Community should be, to contribute to a discussion that seems now to be firmly under way in the intergovernmental conference. I stress the importance of

the issue because there has been a tendency in our country over the years to fail to appreciate the significance of issues as they emerge in the continuing debate in the European Community about its future.
In the 1950s, successive British Governments made the wrong assessment about the potential and eventual reality of the early moves to found the European Community. It was too easily—and perhaps too comfortably—assumed that the enterprise either would not succeed, or would not achieve the ambitions set for it. There was similar scepticism—and not only among politicians—about the potential success of the European monetary system when it was established at the end of the 1970s.
Those experiences should teach us that there are penalties to be paid for failing to assess the serious purport of developments in the Community, and then belatedly trying to influence the shape of institutions and the direction of policy after key decisions have been taken without our participation. It would be wise for us to appreciate that the move towards economic and monetary union is solidly based and widely supported by the majority of the Community.
No one can predict the outcome of the current negotiations. There is no inevitability about the early adoption of a radical move to a single currency throughout the whole Community. As the Chancellor noted, a previous attempt after the publication of the Werner report at the beginning of the 1970s did not lead to monetary union, although the debate helped to promote the establishment of the European monetary system.
On the other hand, the creation of the single mark et after 1992, which is now irreversibly in process, gives an impetus to the consideration of economic and monetary union that was not there before. For those reasons, it would be profoundly wrong for this country not to be engaged fully and constructively in the discussions and debates now under way at the intergovernmental conference.

Mr. Phillip Oppenheim: Will the right hon. and learned Gentleman give way?

Mr. Smith: I have hardly said anything, but I am happy to give way to the hon. Gentleman.

Mr. Oppenheim: I appreciate the right hon. and learned Gentleman's courtesy.
The right hon. and learned Gentleman correctly made the point that it is important, first, to have a clear negotiating position and, secondly, to ensure that our position is heard in Europe. Bearing that in mind, will the right hon. and learned Gentleman make his own position clear by telling the House unequivocally whether he is in favour of a single currency—yes or no?

Mr. Smith: I was slightly reluctant to give way to the hon. Gentleman as I had hardly embarked on my speech. If he listens with attention to my speech, when I can begin to deliver it, he may benefit from what he hears.
In the discussions, we should seek to ensure that the results are not incompatible with our national interest or with the reality of our economic situation—bad as it is —and we should also seek, as a member of the Community, to bring our own distinctive experience, especially our concepts of political accountability and democracy, to bear on some of the crucial issues that will be encountered in the intergovernmental discussions.
Given our experience of joining the European Community and the exchange rate mechanism late in the day, there would be perils in not appreciating the strength of the movement, especially towards monetary union, or in underestimating the potentially adverse consequences in the United Kingdom being outwith the form of monetary union that the majority of the Community would have established.
In the light of those observations, one of the questions to be considered is whether the Government's approach to recent developments in the Community is sufficiently realistic and constructive. Is it realistic about what is likely to happen in the Community and about asserting our national interest? Is it constructive in the sense that negotiations are being conducted straightforwardly and with a sense of contributing purposefully to the debate?
The Government's early response to the Delors report, especially when it was articulated by the right hon. Member for Blaby (Mr. Lawson), the former Chancellor of the Exchequer but one, was totally dismissive. Once it became clear that there was a real impetus behind the initiative, if not behind all the details in the report, the former Prime Minister announced at the Madrid summit in 1989 that there would be a British alternative to Delors. The fact that her Chancellor was not present at the summit added, no doubt, to the Treasury's surprise when the bold new move was announced.
In the Lombard column of the Financial Times on 18 September 1989, Mr. Sam Brittan, a usually well-informed source, described matters thus:
One very senior British official first heard of Mrs. Thatcher's promise after the Madrid Summit to table alternative ways of achieving monetary union to that of the Delors Committee on his car radio.
Mr. Brittan went on to explain that
The official was so astonished that he nearly drove his car into a tree.
Thus was born the plan for competing currencies.
The Treasury, struggling to fulfil the Prime Minister's command, had to do a quick search through the section of its files marked "Daft ideas which might appeal to our political masters". As in many previous cases, they found in the Institute for Economic Affairs file a paper on competing currencies by Friedrich Hayek, the patron saint of Thatcherism. Unfortunately, the former Chancellor's expressed enthusiasm for this idea of competing currencies was not shared by his Community opposite numbers, who basically killed it stone dead at a meeting of the Economic and Finance Council in Antibes in September of that year.
Following the failure of the Treasury to meet the former Prime Minister's demanding, if imprecise, specification to find something different, influential City interests and a former United Kingdom permanent representative to the Community, Sir Michael Butler, came to the rescue of the Government and the Treasury. In March 1990, the Invisible Exports Council published its proposals for the hard ecu, which, with minor amendments, were accepted by the Government.
It is understood that Sir Michael Butler sold it to the former Prime Minister as a market-driven alternative to a single currency. No doubt he drew on a lifetime's diplomatic experience of dealing with difficult individuals by telling them what they like to hear. The difficulty for the Government, however, is that it is abundantly clear that

the proponents of the hard ecu have seen it as an evolutionary route to a single currency and not as an alternative to it.
As I pointed out in one of our earlier debates, Sir Michael Butler, on behalf of the Invisible Exports Council, drafted treaty amendments, which were published in October last year and which explicitly acknowledged the goal of a single currency in stage 3 of the Delors process. So, clearly, the architects of the hard ecu were in no doubt about what they were after.
The same cannot be said about the public declarations of the Government. According to the former Chancellor and present Prime Minister, when he presented the hard ecu plan at the German industry forum on 20 June last year he explained that
in the very long term if peoples and Governments so choose it could develop into a single currency.
Of course, as we know, the former Prime Minister's view that she did not believe that the hard ecu could develop into a single currency was expressed more than once in the House; and of course, notoriously, in one of her latter-day contributions, she observed that it would not be widely used at all. And right hon. and hon. Gentlemen on the Front Bench sat there and nodded in agreement. That was in the days when the right hon. Member for Finchley (Mrs. Thatcher) was Prime Minister. We hear a little bit more muttering about it now, but they all nodded dutifully in those days.
Of course, the present Chancellor of the Exchequer might have had other things on his mind as he was anticipating certain events. I gather that he has been to see the former Prime Minister to explain that he was not guilty after all. I can understand that these things were probably bearing heavily on his mind at that time.

Mr. Dennis Skinner: Et tu, Brute.

Mr. Smith: I hope that Hansard notes that very apt intervention by my hon. Friend.
To confuse matters further, the Financial Secretary to the Treasury, who is, after all, responsible for European issues, gave evidence to the House of Lords Select Committee on economic and monetary union, which I think deserves a wider currency. I hope that the Financial Secretary is not excessively embarrassed at being quoted again. He said, in response to a question about the hard ecu scheme, that the next stage of having a single currency could actually happen more quickly going down this path.
The new Chancellor seeks to explain away this confusion by agreeing with all the three propositions and by stating that it is simply a matter of market choice—no need for Governments or Parliaments to take crucial decisions; it is simply a matter for markets. They alone, according to this theory, take the crucial decision as to whether we embrace a single currency.
Making the perhaps generous assumption that the hard ecu would be adopted by the European Community as a 13th and parallel currency available to the whole Community as an alternative money to their national currencies, there is clearly a risk that a weak national currency could be crowded out by the hard ecu as more and more companies and citizens preferred the security of harder money. According to this theory, a single currency would just happen, regardless of the views of Government or, of course, Parliament, unless Government took action to match the hardness of the ecu and therefore followed the policies proposed by the European monetary fund.

Mr. Patrick Nicholls: Will the right hon. and learned Gentleman give way?

Mr. Smith: May I just make the point before I give way?

Mr. Nicholls: Will the right hon. and learned Gentleman give way?

Mr. Smith: If the hon. Gentleman insists on interrupting me, I will give way to him.

Mr. Nicholls: I put it to the right hon. and learned Gentleman that it is perfectly clear that he does not intend to answer the question put to him by my hon. Friend the Member for Amber Valley (Mr. Oppenheim) about where his party stands on EMU. Is not the reason for that that the Labour party's policy on the EMU, in the words of the right hon. Member for Bethnal Green and Stepney (Mr. Shore), is disturbingly inadequate? That is the charge which the right hon. and learned Gentleman has to face today and he is taking up the time of the House in avoiding it completely.

Mr. Smith: It clearly was a mistake for me to give way to the hon. Gentleman. I was in the middle of an argument and, in an excess of generosity, I gave way to him. I will explain very fully what our position is, but I think that what I am saying is relevant. The hon. Gentleman may not like to hear it but I would have thought that it was the duty of the Opposition to comment on the hard ecu proposals, which the Chancellor boasted of as having been the Government's unique contribution to the debate. I cannot see why it should be a matter of criticism for me to draw attention to what I think are the deficiencies in his scheme. I am astonished that I should be subjected to criticism by the hon. Gentleman for seeking to do just that.
Before I was so inappropriately interrupted by the hon. Gentleman I was pointing out that the deficiency of that scheme was that the decision would be taken by markets and the paradox of such a situation would be that what amounts to a single currency could be—to use the dreadful word—imposed by the twin operation of the market and what in essence would be an all-powerful central bank.

Mr. Andrew Hargreaves: rose—

Mr. Smith: I am not giving way to the hon. Gentleman. I really must get on with my argument.
This may be what the Financial Secretary had in mind when he spoke to the House of Lords Committee.
We have heard a great deal about the Government's total opposition to the imposition of a single currency—a formulation of the issue which is thoroughly, and probably deliberately, misleading. It may suit the Government to use these words to assuage the Bruges group, and perhaps also its new president, but no one in the Community has the power—let alone, as I see it, the intention—to impose new monetary arrangements on the United Kingdom.
If, as a result of the intergovernmental conference, treaty amendments are agreed, they will have to be brought by Government to Parliament. They will come about only if the Government decide to adopt them and Parliament approves—so much for a single currency being imposed on anyone. The irony, of course, of the hard ecu proposal is that this could be a way of avoiding a decision by Government and Parliament in the name of market forces—hardly a prescription which the House should find attractive—if the real decision is taken by market forces.
Whether or not the proposal for a hard ecu would ever work, it does not face up to what I believe to be the key issue in the whole debate about monetary union: what form of accountability should exist for Community financial institutions. I think that a majority of the House, with some exceptions, is agreed that a completely independent European central bank would not be acceptable. In the opinion of the majority, there has to be some form of political accountability.
I do not think that the hard ecu proposal, with its proposed European monetary fund, deals adequately with this question. In a previous debate I asked the Chancellor, who was then Chief Secretary, to explain the arrangements for its accountability, and he appeared to have some difficulty in doing so. He told me that the Government were against an independent central bank, which is fine, and that
The monetary authority would be subject to political control, which would have to be negotiated".—[Official Report, 23 October 1990; Vol. 178, c. 284.]
In the published treaty amendments, to which the Chancellor drew the attention of the House, one of the relevant documents, in article V the Government have adopted the unusual tactic, on the question of accountability, of putting forward alternatives—a so-called alternative 1 and alternative 2. Alternative 1 would make the governors of the European monetary fund completely independent—as I read it, more or less Bundesbank-type control. Alternative 2 apparently would preserve national Government control over their appointees to the governing board and, presumably, the executive board of the European monetary fund.
What puzzles me is that, if the Government are clear that they are against an independent bank, they put forward an independent structure for the European monetary fund as one of the alternatives without apparently expressing a difference between them. What is it that the Government prefer? The House is entitled to ask that question and to hear an answer to it. All that the Chancellor told us was that he was interested in ideas. It is a fundamental point for a Government to put forward a proposal to others and be unable to answer, when they will undoubtedly be asked questions by others.
In addition, there is the problem of the way in which the European monetary fund is designed to work and to manage the hard ecu, which makes the question of accountability particularly intractable. In all circumstances, the hard ecu will reflect the value of the strongest currency in the system, which, as we know, is most likely to be the deutschmark. The European monetary fund will have to match the Bundesbank. Because of that built-in obligation, its policies and practice could hardly differ from those of the German monetary authorities. The hard ecu might become a figleaf covering the real monetary standard for Europe, which, in all probability, will remain the deutschmark. The absence of real discretion in practice for the European monetary fund makes the question of accountability almost academic.
For those reasons we do not think that the hard ecu adequately tackles what we consider to be a crucial matter. Nor, for that matter, do we think that the present Commission proposals, which envisage a basically independent central banking system, are satisfactory. We believe that there needs to be established a relationship of accountability between any central bank and the elected Governments of member states. That is why we have


proposed that the Council of Economic and Finance Ministers—ECOFIN—should be strengthened and given the task of providing strategic guidance to the process of monetary co-ordination. In effect, it should become the political supervising body, with its own secretariat and permanent representatives, capable of adding an effective political dimension to the conduct of monetary policy and the external exchange rate policy of the Community. That proposal would also ensure that a line of accountability to national Parliaments would be preserved.

Mr. Nigel Forman: Is there not a certain illogicality in the right hon. and learned Gentleman's argument? If he attaches such great importance to the principle of public accountability in monetary policy for Europe, and so on, why not opt for the logical approach which is to have direct and periodic accountability from the monetary institution at the centre of Europe to the European Parliament on the one hand and from component banks such as the Bank of England to national parliaments on the other hand?

Mr. Smith: Ours would be a better solution because it would mean that there is, right at the heart of the Community, a politically accountable body with far more effective influence and supervision than the rather gentle forms of accountability that the hon. Gentleman proposes. There probably will be a link with the European Parliament, but I do not think that hon. Members would feel that that was enough on its own. For the bank to give the odd report to a Select Committee here in the way in which the Governor gives evidence now—

Mr. Brian Sedgemore: There is no pressure.

Mr. Smith: As my hon. Friend says, there is not much pressure. There does not seem to be a strong line of accountability as a matter of judgment. I therefore respectfully disagree with the assessment made by the hon. Member for Carshalton and Wallington (Mr. Forman).

Sir Russell Johnston: Is not the right hon. and learned Gentleman slightly overstating the independence of the Bundesbank? After all, it is required to follow the general economic policy of the federal Government. For example it was against EMS in 1978, but it was overruled. Of course, more recently it was very much against Kohl's economic proposals for unification.

Mr. Smith: It is possible to overestimate the independence of the Bundesbank. It must operate within the general framework of economic policy which the German Government prescribes. It is fair to say that it has far more room for manoeuvre as an institution than the Bank of England or the Bank of France has traditionally had. I was slightly surprised that the hon. Gentleman made that point. I understood his party's policy to be that it was not specifically in favour of having an independent Bank of England and, even more so, an independent European central bank. However, he was quite right to draw attention to the fact that the Bundesbank is not totally independent. On German monetary union, one could argue that some of the issues that arose were not narrow monetary issues but important, broad political issues. It was not surprising that the German Chancellor

felt that he had to express a view. It would be very odd if such decisions were taken by a bank and not by the Government of the day.

Mr. Fayell: I agree with much of what the right hon. and learned Gentleman has said, apart from the cheap political jibes that are part of the cut and thrust of debate. However, he should tell the country the Labour party's solution to this enormous problem. We want to know.

Mr. Smith: I do not intend to make expensive political jibes either out of office or in office. The hon. Gentleman might have noticed that the Chancellor of the Exchequer was not wholly free from bias in his description of the Labour party, nor wholly free from rather cheap personal references. If the hon. Gentleman were as even-handed as he would like to be considered, he might have noted that as well. However, I am anxious to get on. I am making an important, positive suggestion—a clear alternative on political accountability. I hope that Conservative Members are paying attention.

The Economic Secretary to the Treasury (Mr. John Maples): What is the right hon. and learned Gentleman going to do?

Mr. Smith: A Treasury Minister asks what I am going to do. My suggestion will fulfil an important task, which is to bring the central bank to political accountability. That may not strike that Treasury Minister as of any importance, but it will strike many hon. Members as being right at the heart of the matter.
ECOFIN's role has already been growing. It reports regularly on economic conditions within the Community and already conducts so-called multilateral surveillance. There is growing interest in such ideas, particularly by the Government of France, whose views were quoted with approval by the Chancellor, and who have made similar proposals for the role of ECOFIN and will no doubt be pressing them during the intergovernmental conference so that they will come to the attention of other member states.

Mr. William Cash: Will the right hon. and learned Gentleman give way?

Mr. Smith: I must be allowed to make progress.
There are some rather weak proposals for accountability to ECOFIN in the European monetary fund proposals in the treaty amendments, amounting to little more than a monthly report. We do not know what the Government's reactions to proposals for a strengthened ECOFIN would be. No doubt the Minister will give the Government's view.
Although it is important to secure accountability, it is far from the only consideration in assessing the desirability and feasibility of monetary union. Of overwhelming importance is the appreciation that any movement towards monetary union will be in the interests of the Community as a whole only if there is substantial convergence in the economic and social performance of individual states. Monetary union, in the absence of adequate levels of convergence, would create unbearable strains within the Community, threatening fragmentation rather than integration.
We therefore think that it would be a serious error to establish a rigid timetable for monetary union which ignores the realities of divergence in real performance. Progress should be by achievement of convergence, rather


than by the arbitrary use of the calendar. In that connection, we strongly believe in the importance of a greatly expanded system of regional and structural funds at the Community level.
I am afraid that the Government take as negative a view of regional policy at the European level as they do at the British domestic level. We believe that regional policy must be used as an effective means of assisting convergence and avoiding the risk that the establishment of a single currency would disadvantage weaker nations and regions.
At the end of this year, the Commission will review its regional and structural funds. It will be an important opportunity to review the instruments and resources available to the Community to promote the social cohesion and economic balance that we believe to be crucial objectives for the developing Community. The present Government's record in regional policy in our country and at the Community level leaves us with little confidence that they appreciate the importance of the issue. It will not be long, however, before a Labour Government can tackle it properly.

Mr. Andrew Mitchell: I have listened carefully to what the right hon. and learned Gentleman said about regional policy. Indeed, the Leader of the Opposition has said that he believes that monetary union should be accompanied by a massive regional policy. Will the right hon. and learned Gentleman explain to me and my hon. Friends whether that means anything other than British taxpayers paying for a great deal of development in countries such as Greece and other less developed countries of the EC?

Mr. Smith: That is obvious, if the hon. Gentleman thinks about it. It is already reflected in the Community's provisions. The resources of the whole Community are made available for regional and structural funds. Every member state contributes to the funds and receives money from it. That is one of the principles on which the Community is established. If the Conservative party is at such a primitive stage that it cannot contemplate a regional policy at either British or European level, that is its problem, not ours. Its view is not widely shared in Europe.

The Financial Secretary to the Treasury (Mr. Francis Maude): Does the right hon. and learned Gentleman accept that, even with the much improved budgetary arrangements negotiated by the Government, the effect of a massively increased structural fund programme would be a net outflow of funds from Britain to other countries?

Mr. Smith: I do not accept that that follows. [HON. MEMBERS: "It does."] It does not follow. There is no reason why it should. It is merely the Minister's assertion. It all depends how the fund is constructed and how the Government deal with it. It depends on the criteria applied and how they are administered.
It is depressing that Conservative Members simply do not understand how important regional policy is. It is regarded as important in all other European countries. It is one of the reasons why Thatcherism never crossed the English channel.

Mr. Ian Taylor: rose—

Mr. Smith: I shall not give way. I have given way frequently.
The other countries of the European Community have a far more balanced idea of economic progress and see social progress as an integral part of it. The Conservative party remains unique as the most backward political party and the most backward Government in the whole Community.

Mr. Ian Taylor: rose—

Mr. Smith: I have given way frequently to Conservative Members, on many occasions extremely unwisely. I should get on with answering the question which they always ask me and say what our policy is. There are some other issues to be dealt with. I wish to proceed in detail on each item of policy.
We believe that there are other issues of considerable importance. It is important to distinguish between monetary union and the far from precise notion of economic union, implying as it might the loss of fiscal and budgetary sovereignty. The principle of subsidiarity should ensure that progress towards monetary union does not require a common fiscal or budgetary policy for the Community as a whole. As the Economist argued in an interesting article on 20 October 1900:
The view that a single currency must infringe fiscal sovereignty is simply wrong … A one currency EMU could and should leave governments free to tax and spend as they see fit and run whatever budget deficits the domestic and international capital markets are willing to finance. With the end of exchange rate uncertainty in Europe, that willingness might actually increase. EMU need not endanger fiscal sovereignty.
I agree with that conclusion. It should inform our approach. It is an antidote to the wilder assertions of both people who are opposed to the whole concept of the European Community and equally unrealistic advocates of a European superstate.
We also believe that progress towards monetary union should not prevent the widening of the European Community—which is highly desirable. The rapid accession of the former European Free Trade Association countries should be an objective to be enthusiastically pursued by the British Government. Of course, we should provide for the later association and accession of the new democracies in central and eastern Europe.
Those are the considerations which in our view are most germane to economic and monetary union at this formative stage. They are the criteria by which we shall judge the acceptability of the proposals which emerge from the intergovernmental conference and subsequent Community summits.
It would be easier for us all if our country were in a position of economic strength. Regrettably, despite the claims heard not so long ago from apologists on the Government Front Bench that in the course of experiencing an economic miracle we had surpassed the Germans and left them far behind, we know the reality of the result of a decade of Conservative economic mismanagement. In this important year, in which we should be preparing for the competitive world of the single market after 1992, investment is falling sharply. The Government predicted that manufacturing investment would fall by 7 per cent. this year. Training is being cut, output is falling and unemployment is rising.
Whether or not monetary union is achieved, our country will prosper only with consistent investment in supply side strength—in capacity, infrastructure and, most importantly, the skills of our people. Such investment is a


necessary condition for economic success both within the United Kingdom and throughout the Community. After the wasted opportunities of the 1980s, that is the fundamental challenge that we must face in the 1990s.

Mr. Ian Stewart: A large number of my right hon. and hon. Friends have sat here and listened to the right hon. and learned Member for Monklands, East (Mr. Smith), hoping that at some time during his speech he would answer the question put to him by several of my hon. Friends—whether it is the policy of the Labour party that we should move towards monetary union. The right hon. and learned Gentleman made several interesting comments about the European monetary fund and the European central bank without saying whether he referred to a monetary fund or central bank responsible for administering monetary union, to the hard ecu or to some intermediate stage. If the Labour party wishes to be taken seriously on the subject, it will have to answer the central question of whether it favours a move to monetary union.
The right hon. and learned Gentleman spoke about the need for a long drawn out timetable. I agree that any early move to monetary union would be dangerous when there are such wide differences between the economies of various member states of the Community. There is no difference between him and the Chancellor of the Exchequer or among right hon. and hon. Members on that. However, we waited in vain to hear whether it would be the objective of the right hon. and learned Gentleman if he were Chancellor to take the country and our currency into monetary union, with all its consequences.
The right hon. and learned Gentleman said that it would be unwise to adopt monetary union in the near future. However, although I listened carefully without intervening—I was tempted to interrupt—at no point did he say whether his ultimate objective was monetary union. Perhaps he will intervene to tell me the answer.

Mr. John Smith: I shall tell the hon. Gentleman if he will tell me the Government's ultimate objective, as he understands it.

Mr. Stewart: We know the Government's objective perfectly well. They do not advocate monetary union. They have said that the hard ecu could be an intermediate step. They do not exclude the possibility of monetary union but they do not advocate it. That is my understanding of the position that my right hon. Friend the Chancellor of the Exchequer has explained on many occasions. The right hon. and learned Gentleman has given no such explanation of the Labour party's policy on a major constitutional and economic question.
Whatever our personal views of the desirability of monetary union, and whether it should come sooner or later, the right hon. and learned Gentleman has not stated the view of the Opposition on an issue which he has described as profoundly important to us all. He undermines his credibility as a judge of these matters when he says that he is in favour of dealing with the problems of convergence by hugely increasing the structural funds, but

does not admit that that would have an adverse impact on the United Kingdom's budget payments to the European Community.
I do not know what the right hon. and learned Gentleman has been doing all these years while he has been shadow Chancellor, but he has not mastered any of the intricacies of the European budget. If he had, he would know that the more prosperous countries and those that receive less under the common agricultural policy arrangements, are bound to be net contributors, and any substantial reallocation of resources such as he advocates in order to encourage economic convergence would be bound to impose, not only on this country but on Germany, France and others, a large increase in their budgetary contributions. For him to brush it off and say that, because arrangements have not been decided, nobody can tell the answer, is to fly in the face of how the European budget is constructed. It is not good enough for him blithely to dismiss that as a matter of no interest and one which, if he were Chancellor, the United Kingdom could disregard.
The people of this country would not disregard the implications of paying out large sums of money in taxes to subsidise those in other countries who would be benefiting from the huge increase in the structural funds. The only way in which the proposal would not result in substantial transfers from the United Kingdom to the Economic Community's budget would be if Britain were to get a disproportionate share of the new structural funds. Unless the right hon. and learned Gentleman is arguing that a massive transfer of resources from other Community countries to the United Kingdom is a part of his convergence exercise, his remark that there would be no adverse budgetary impact on this country is nonsense, and he should recognise it as such.
I welcome the right hon. and learned Gentleman's recognition that, in current circumstances, to have monetary union such as that advocated by the European Commission, and to have it in the foreseeable future, would have adverse consequences for all Community members because of the differences in levels of prosperity, job arrangements and mobility.

Mr. John Smith: I did not say that at all.

Mr. Ian Stewart: I thought that the right hon. and learned Gentleman implied that. Will he explain what he was implying when he said that monetary union would have adverse consequences in the short term?

Mr. Smith: That is a total misquote.

Mr. Stewart: I shall not misquote the right hon. and learned Gentleman, but state what he said. He said that he was concerned about economic convergence and different standards in the economies of various countries, which means exactly what I said.

Mr. Smith: The right hon. Gentleman has drawn attention to my comments. The principal matter with which I am concerned is the relative economic weakness of this country in relation to the other countries of the European Community. Should not that be a proper concern—particularly of a representative of the Conservative party that caused the problem?

Mr. Stewart: I did the right hon. and learned Gentleman the unjustified credit of believing that he had


some regard for other member states of the Community which were less prosperous. I thought that when he talked about convergence he meant the difference between the more highly industrialised and developed countries of the Community and those, such as the Mediterranean countries—particularly those which more recently joined. There is a considerable gulf between the economies of those Mediterranean countries and those of the Community's northern member states. I am pleased to withdraw the generous accusations that I made against the right hon. and learned Gentleman.
The single experiment involving economic union that the European Community has so far undertaken has not been a success. The common agricultural policy is an attempt to impose economic union on a small percentage —about 4 per cent.—of the European Community's economy. Although it has dramatically encouraged output in that section of the European economy in recent years, it has caused major financial imbalances between different member states and raised the national self-interests of Germany, France and other nations to the point that they cut across the supposed ideas of European unity of purpose.
It is a damning comment on the wilder European aspirations of some other member states that, when forced to deal with matters in practical terms, their performance differs so much from the rhetoric that they use. The performance in relation to the negotiations on the general agreement on tariffs and trade is the most recent example of that, but it happens in other spheres. In recent weeks, France has shown diplomatic independence in relation to the Gulf affair. Anyone who suggests that we are on the verge of being able to unify the foreign, security or economic policies of the European Community as a whole, is living in a dream world.
Many Conservative Members are in favour of many of the positive aspects of the European Community but very much regret it when it wanders into sectors not substantiated by the facts. The gulf between Euro-rhetoric and Euro-reality does not do the European Community any good and I should like the European Community to make progress towards overcoming it. Economic and financial convergence between members states would be good for the Community and for this country, but it is not encouraged by trying to pretend that we are much closer to being able to achieve such aims than we are in practice.
Therefore, I particularly welcome what my right hon. Friend the Chancellor said about the practical proposals that he has made in relation to the hard ecu. There were some who criticised his proposal as some sort of negotiating ploy by the British Government. I never regarded it in that light: it seems a sensible development that takes forward the fact that the ecu has already become an established money of account. It already has a certain usefulness and credibility within the Economic Community and, in the hard ecu form proposed by my right hon. Friend and his predecessor, it could develop a valuable function, both commercially and for individuals within the European Community. If, in the long run, that were to lead to a desire for a single currency, I have no objection. That decision could be taken only in the light of events that may be many years ahead of us.
In this, as in most spheres of European policy, we need evolutionary development so that we can see how matters progress and adjust the process along the line. We do not

want to decide, in advance, what the ultimate objective should be, and then find that, by adhering to it, we cause immense practical problems in the near future.

Mr. Hugh Dykes: Does my right hon. Friend agree that, in a sense, deciding in advance what the objectives are, filling in all the details, having a deadline and deciding on the voluntary collective imposition of a policy applies exactly to the internal market—so why not to monetary union?

Mr. Stewart: The internal market is a series of practical decisions taken in the light of converging trade over a long period. Member states, including the United Kingom, have found obstructions and tried to remove them. That seems entirely different from imposing an ultimate target that is not self-evidently desirable at this stage.
It is all very well to say, as the right hon. and learned Member for Monklands, East did, that monetary union does not necessarily mean political union. I take issue with him on that. I do not believe that it would be possible, for any length of time, to have unification of interest rates, every country assuming the external deficits or surpluses on balance of payments, with freedom of movement of goods and money around the Community, without imposing some form of supranational control to sustain the system.
It is often said that if there is only one currency, there should be only one Chancellor of the Exchequer or Finance Minister. I do not see any escape from that. One can find odd articles in The Economist and elsewhere suggesting that that is not the case, but there is no evidence that it is possible, for any length of time, to manage monetary union without political union. We should be clear that the one implies the other and we should not move towards a policy of monetary union unless we are prepared to accept that political union goes along with it.

Mr. John Butterfill: Does my right hon. Friend agree that monetary union would impose a discipline on budget deficits throughout the Community and that that might be somewhat embarrassing for the Labour party, which has thrived on budget deficits?

Mr. Stewart: It would cause the Labour party problems but, from what the right hon. and learned Member for Monklands, East said, his policies would cause many other problems, of which a deficit might not be the greatest.

Mr. Favell: Will my right hon. Friend give way?

Mr. Stewart: I am afraid not, as I wish to respect the wishes of the Chair. We have all been asked not to speak for too long.
I have a few practical comments about the hard ecu. As I understood my right hon. Friend the Chancellor, inherent in his system would be recourse by individual member states to indemnify the European monetary fund for any losses that might be sustained by the issuance of hard ecus against the basket of currencies which incorporated a currency that devalued within the EMS. Such an arrangement would be essential and I hope that, in his negotiations, he will draw attention to this.
Any proposal that led to the conversion of softer currencies into hard ecu where the exchange risk was carried by the Community as a whole would not be fair on the countries that were managing their currencies more responsibly. It is an essential technical part of the


proposals that what my right hon. Friend said this afternoon should have the practical effect of throwing that risk on to the countries whose currencies were weaker.
There is a prospect that a hard ecu could become commercially useful within the European Community as many more companies trade more thoroughly throughout the different countries within it. One of the arguments advanced by the Commission and others in favour of monetary union is that it would reduce exchange costs and conversion prices of currency in covering contracts. If one had an acceptable common currency such as the hard ecu, that benefit could be achieved without monetary union but by the step advocated by my right hon. Friend.
The other point—I speak only personally in this—is that I should find it useful to have a currency that I could use in any of the member states of the Community, perhaps initially only in hotels, for transport or such purposes, and perhaps only in the capitals or the main commercial or political centres. I suspect that many others, in this country and on the continent, would find that a valuable development.
To pick up a point made by my right hon. Friend, I can tell him that, in the Napoleonic wars, the Bank of England issued tokens that were acceptable as currency but were never legal tender. The same is true of Scottish bank notes now, which are acceptable in Cumbria, Northumberland and other northern counties and even in the Post Office of the House of Commons, but are not technically legal tender. There is no obstacle to the use of a common currency internally for retail and personal expenditure even without the full sanction of legal tender, a point mentioned by my hon. Friend the Member for Stamford and Spalding (Mr. Davies) in his intervention.
I should welcome such use of the hard ecu as a helpful development. I congratulate my right hon. Friend the Chancellor and his predecessor, who is now the Prime Minister, on putting forward an idea that is valuable not only intrinsically but in terms of our negotiations with the European Community, and an idea that I should like to see put into effect. I hope that he will be as successful in persuading other member states that that should be done.

Mr. Robert Sheldon: The right hon. Member for Hertfordshire, North (Mr. Stewart) spoke about the wide differences in the Community—a point with which I shall deal later.
The only justification for the hard ecu was that it allowed the Government to avoid making a hard choice. It was a way to avoid saying no. I welcomed that development, as I thought that it was wrong for the country to be in a minority of one with 11 others against it. That is not diplomacy or good sense. That creates enemies where one does not need to create enemies. The Treasury's brilliant idea was to present this as an alternative. It is not an alternative, it is nonsense, but I hope that it will serve its purpose and bring about what I hope will come eventually—a greater realisation of the problems of the EMU.
Removing the right to change the value of one's currency is an act of extreme importance. In the post-war years, we saw two important changes of our currency. The Labour party may be a little paranoid about such a move,

because it came in in 1949 and 1967. The first was a result of the war and the second was the result of the Barber boom. It was the Labour Government who had to deal with the consequences of those. Faced with such impossible situations, a devaluation became necessary.
The trouble with devaluation is the delay. It takes a long time before people realise the inevitability of it. Devaluation is not the only solution, but it is a valuable weapon. The first devaluation in 1949 was most successful. The devaluation from $4 to the pound to $2·40 to the pound led to the benefits that we enjoyed throughout the 1950s. So good were the benefits that we were able to ignore the Messina conference, because we were sure of the enormous advantages that we had. It ended with the "never had it so good" years of Harold Macmillan. Much the same happened in 1967. After the boom years, we were once more in a balance of payments crisis and once again, the decision was deferred.
Devaluation is of particular importance to manufacturing industry, something that I hold dear because my constituency has one of the largest manufacturing sectors of all constituencies. It consists almost entirely of small firms, but these are of enormous importance to the country, as they are in Germany, Japan and other countries.
Devaluation helps exports and reduces imports but, most importantly, it helps manufacturing exports and discourages manufacturing imports. Nobody can deny that it has inflationary consequences, but there is a time lag before those come through. That is a little shorter now but, during that period, something can be done if there is good sense in Government. The City and the Bank of England do not like devaluation; nor do those who like a strong pound, because of the foreign investment opportunities that it provides. Such opportunities are not necessarily to the advantage of our country.
In deciding the issue between industry and the City in favour of the City, the Government have lost a useful ally —the Confederation of British Industry. The CBI once promised a bare-knuckle fight to defend manufacturing industry, but many of the members of the CBI are now in service industries and industries that benefit from the strong pound. The Government should look again at the needs of manufacturing industry. Some Governments have favoured industry and, although they have been few and far between, I am happy to say that they have always been Labour Governments.
The price has to be paid. Once one decides to go for a high exchange rate, which is what we have now, and to have EMU or ERM, which presupposes a fairly high value for the pound, one is left with the problem of industry, with the result that industry is told not to increase pay to compensate for price changes. In the days of the previous Prime Minister, the Government used to say that pay demands did not matter. They thought that money supply would provide the answer. They were soon disabused and learned reality. It is not long before we heard the exhortation that is the main principle of reducing inflation now—keep pay demands down. Of course I have nothing against exhortation. It does no particular harm, but neither does it do much good. It is not a policy in itself. Eventually it is seen to be inadequate, and other policies are looked for.
There are two ways of looking at EMU. One is to obtain some stability in currency markets. I am in favour of stability. There would be a lot to be said for the level of


the pound against other currencies remaining pretty stable over a long period, until it became unsupportable, resulting in considerable devaluation or, possibly, revaluation. During that period one could have some very competitive pricing because people would not have to take into account the risks of devaluation or revaluation. There would be great advantage in that. One could compare it with what happens when there are more frequent changes in the value of currency, resulting in greater cost to both exporters and importers. I argue that the Bretton Woods period was very useful. But it could not last. Eventually adjustments of that kind are going to have to be made, but they will not be possible under EMU.

Mr. Taylor: I am concerned about the right hon. Gentleman's analysis, which seems to regard devaluation as a beneficial act. Devaluation is required only if a country has not been pursuing domestic policies that improve the competitiveness of its industry. It is clear that currency depreciation does not improve the competitive position of a country in relation to those countries with which it trades extensively. The old Phillips curve analysis is out of the window.

Mr. Sheldon: Of course, one can keep one's eyes closed if one wishes, but when one sees manufacturing industry suffering, what does one do? Does one allow unemployment to rise indefinitely? Of course one cannot do that. One has to face the reality. Any Government with any sense at all must face the reality when pushed to do so. I realise that Governments are reluctant to take this step, but occasionally it is necessary. I hope that that will be understood whenever these matters arise.
The other solution is to say that we must discipline our industry within EMU, that we have to punish workers with the threat of factory closures and unemployment. In this respect, EMU will be even less forgiving than ERM. The trouble is that some very highly respected economists and commentators do not understand the wage bargaining process as it is carried out in this country. It has resulted in much recrimination as those with high incomes—incomes obtained in comfortable and interesting occupations—have failed to understand, or even to feel, the frustration of so many who see their lives mapped out years ahead, with few, if any, chances for the future, other than the hope of higher pay for much the same job.
One may condemn this limited outlook. One may even, with much more justification, blame the managers, who cannot convey the feeling of participation in a worthwhile industrial venture. But condemnation will not change very much. Least of all can the Government, with their failure to understand industry, change perceptions and expectations.
There are many who have awaited with relish the discipline of the ERM and, now, of EMU. But discipline is too often the remedy of the inadequate. I remember, as a machine shop manager, reading adverts in the late 1940s. Some of them said something like "Manager required—good disciplinarian". That was the negation of management, and it owed too much to our class attitudes. To assume that ERM and EMU will do our job for us is to ensure that management will be less than professional.
There were the beginnings of enthusiasm for EMU, which we find a little more muted now. I fear that whatever happens will not benefit the City of London. I believe that Frankfurt and Tokyo will become even more dominant,

because they have the manufacturing industry. As I have said before, I believe that markets follow money. Markets follow the creation of wealth. The fact is that wealth is not created in New York city or in London the way it used to be, because the manufacturing strength of the United States and the United Kingdom is not what it was. Of course we must help the City of London, which is very valuable indeed. There are those who look to EMU as the solution to a number of these problems.
My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) thinks that, if there is to be a central bank of Europe, control must be exercised by some body. I feel that it would be extremely difficult to control such a central bank. Indeed, controlling a central bank in one country is hard enough. The Chancellor of the Exchequer knows what problems he has with the governor of the Bank of England, even though they speak the same language and the Bank of England is only just down the road. Indeed, they meet at least once a week—at least, that was the case in my time. But if there were a central bank in Frankfurt, or wherever, the people going there would not even speak the same language with perfection. Thus the problems would be magnified greatly. It was because of such problems that we—with much Tory support, I must confess—nationalised the Bank of England many years ago.
Everybody wants to see convergence. It is asserted that that is the solution—that if we can get convergence, EMU, ERM and all these things will become possible. But when there is talk of convergence, everybody looks to Germany. When anybody in an organisation wants to spend money, he looks to the treasurer. I have been a treasurer, and I know the feeling. Someone has to provide money, not just for the north-east and Scotland, which are central to our hearts, but, as has been mentioned, to Greece, southern Italy, Spain, Portugal, and so on. Prosperous individuals and prosperous countries like Germany do not become prosperous by parting easily with their money.
It will be very difficult to find someone to finance all this convergence. When we talk of convergence, most of us mean convergence of living standards. Surely that is what it is all about. It is not about financial intermediaries, but about the living standards of our people. That type of convergence will be hard to achieve. Convergence of interest rates is much easier—it could be achieved now —but one cannot rely on monetary matters. One has to start looking at the fiscal consequences. That will come under ERM, let alone EMU. One will be limited in so many ways that one will have to start thinking in terms of increasing taxes.
I suspect that, even now, people in the Treasury are dusting down the idea of the regulator, whereby changes could be brought about very suddenly—changes in taxation that would have a great effect because of the need to control the economy. Fine tuning of the economy will not be possible under EMU to anything like the same extent if the financial possibilities of those changes are ignored.
Finally, there is the convergence of inflation as well as of interest rates. If one really insists on the convergence of inflation—by jacking up taxes or by some other means —one will force the country into a depression. If one is, really serious about it, that will be a result. One will find oneself saying, "Thank you very much. We like these fine theories. We are very impressed by the ability of some of these people to spin out all these arguments, but it is the


people of our own country to whom we have the greatest responsibility." Those who, during the inter-war years, undertook the role of bringing about that kind of depression should not look for their successors here and now.
Let us continue to discuss this matter. I agree with my right hon. and learned Friend the Member for Monklands, East that saying no is no solution. What we have to do is say, "Yes, we are not just one out of 11. It may be that you are right, but, on the other hand, it may be that you will come to think that the solutions that you thought were right are not really the most sensible." Are Greece and Portugal really going to go for EMU at the end of the day? Certainly let us spin it out by the best possible means. The point about convergence is that, although our view is not likely to be wholly successful, we know the direction in which we should go. There are no mile posts but there is a direction, and that is about as much as we can hope for today.

Mr. Christopher Gill: Thank you, Madam Deputy Speaker, for calling me so early in this important debate.
The subject for debate is economic and monetary union and I shall resist the temptation to talk about ERM, on which my comments might be construed as slightly less than helpful to the Government. Nor shall I talk about political union, which even Jacques Delors realises is dead in the water as a result of the feeble EC response to the Gulf crisis.
I want to invite my right hon. Friend to consider that an economic and monetary union of sorts already exists within the EC and has existed for many years. I refer, of course, to the common agricultural policy. I invite right hon. and hon. Members to consider for just a moment that within the CAP there already exists a central prescriptive controlling body, the Commission, with a monetary fund of its own, with its own currency, the green pound, which in turn has spawned its own version of ERM, monetary compensatory amounts.
Let us contemplate, then, the history and experience of the CAP and judge whether that has worked. Farmers are not happy with it, but then one might say that farmers are not happy with anything. Then invite taxpayers, politicians, Governments and other nations in the world to consider whether they are happy with the CAP, and each time the resounding answer will be no.
Politicians have pulled agriculture up by the roots and transplanted it into an alien environment. They know not what they do. There is talk in the House today of convergence. For agriculture and the CAP there never was a prospect of convergence, because climate, geography, topography and a host of other things will never converge.
Economic and monetary union will be not dissimilar to the CAP. It would just be bigger and more disastrous. Its effects on the regions would be the same as those of the CAP, the effects of which have been most disastrous in those areas that they were specifically designed to help. Hon. Members who represent less favoured areas will know exactly what I am talking about.
Implicit in economic and monetary union is a single currency. Without doubt, a single currency would give rise

to uncompetitive regions. Hon. Members may care to think along the lines of Wales and Scotland and the economic and monetary union that the United Kingdom has had for many years, in which they are still the uncompetitive parts of our economy.
Uncompetitive regions give rise to ever greater demands for regional aid. I am sure that the British taxpayer today will have noted the comments of the right hon. and learned Member for Monklands, East (Mr. Smith) who envisages a situation in which taxpayers will be called on to stump up ever more of their hard-earned money to provide ever greater regional funds, not necessarily for Britain but for the disadvantaged regions of the whole of western Europe. The result would be that nationalist tensions would increase, and ultimately one can expect to see the break-up of the Community, as we now see the break-up of the Union of Soviet Socialist Republics.
A question sometimes asked is what harm a single currency has done to Wales, Scotland and Ireland, but the real question is what good has been done to the regions of the United Kingdom. Has having a single currency stimulated enterprise, initiative, innovation and entrepreneurial activity in the regions of this nation? On the contrary, it has reinforced and underwritten the dependency culture. It has increased dissatisfaction with the Government and it has heightened nationalist feeling. Conservative Members miss having more colleagues from Scotland and Wales on these Benches.
There is no case for another common institution—certainly not the economic and monetary union that we are discussing today. The best prospect for Britain's prosperity and the prosperity of my constituents and those who live in Wales and Scotland, and indeed all those who live in the nations of western Europe, is a Community of individual co-operating sovereign states.
Our priority at this time must be to make the existing institutions work, not to spend time and energy tilting at windmills. We must put our best foot forward to complete the single market based firmly upon four freedoms—freedom for goods and for services to be bought and sold without fiscal, technical and practical barriers, freedom for capital, and freedom for people to move within and throughout a wider community without let or hindrance. More than that is unnecessary, and more than that is unwanted.

Sir Russell Johnston: The hon. Member for Ludlow (Mr. Gill) will excuse me if I do not immediately follow him, but I find it difficult to understand how a member of the Conservative and Unionist party could put forward such a robust argument against having Scotland and Wales as part of the United Kingdom, suggesting that they would have done much better had they stayed on their own. However, I do not want to follow him down that road, about which we could have a long argument all night. There is not much time, and I too shall seek to be brief.
It is a moot point whether economics determines politics or politics determines economics. Certainly politicians try and certain politicians have a considerable notion of their capacity to succeed.
The Liberal Democrat approach to the EC is, in the first instance—I make no bones about it—political. We believe


in a political union, partly for emotional reasons but also because there are practical advantages to be derived from collective influence in Europe and from thinking through common positions in Europe. As has been said, it is true that co-operation in Europe has not really worked so well on the Gulf as it might have done, but that is no reason for doubting the possibility of achieving such an approach, as I am afraid the Prime Minister did last Tuesday. On the contrary, it underlines the need to proceed further. If members are knitted into a political union in the way that we think they should be, there would be a much better chance of producing a coherent and acceptable approach.
Political union also involves the acceptance that others might have something to teach us about politics and government. Equally, the economic record of successive Governments since the war does not lead me to fight in the ditches to make sure that all economic decisions affecting the country are made in this country, or to avoid having economic decisions affecting this country being in part determined in conjunction with other people.
Why should we support economic and monetary union? I will run through the simple arguments quickly, but the first point is that transaction costs are reduced. That is a straightforward, unarguable point. It does not apply to the hard ecu, but I shall come back to that. Secondly, there is strong evidence to suggest that it would lower inflation. Certainly the creation of a central bank would lead to a degree of credibility if it was like the Bundesbank, which is not absolutely independent but has an important area of independence. Because they can rely upon the position of the central bank and know that inflation will not rise, employers and employees restrain wages. That in turn has an effect on jobs and investment.
We support a single currency, but the idea that it will be imposed is ridiculous. Equally ridiculous is the idea that it can be brought in overnight. Nobody will rush headlong into it. We must have a central bank first, as stage 2 of Delors forecast. As I understood it—I may be wrong—the main objection advanced by the right hon. and learned Member for Monklands, East (Mr. Smith) to creating a central bank was the democratic deficit argument, that somehow it would be an undemocratic institution and therefore bad, QED. He produced the ECOFIN proposals as a contrast.
There are three reasonable arguments why the Bundesbank, with its current degree of independence, is acceptable to persons who think that democracy is important, as I do. First, its constitution would be written and approved by democratically elected politicians; the bankers would be appointed by politicians; it would have to report to politicians, and its constitution would require it to run its monetary policy in line with the general policies of the European Community.
Secondly, to have an independent bank is in line with the philosophy of limited government. A politically run monetary policy is not necessarily good for the long-term health of the economy. We have been told for 10 years that the central purpose of the Government's economic policy is to reduce inflation. Ten years on, inflation is down marginally from what it was in 1979; certainly it was marginally up not many months ago. Sometimes politicians can go wrong because, as the time approaches to go to the polls, they are tempted to change things and make them a little better.
Thirdly, experience in Germany, and for that matter in the United States, of an independent central bank is good.

There is often tension between the elected Government and the bankers, as there was recently in Germany, hut. I do not think that anyone considers that American or German democracy is undermined because of the existence in their countries of a central bank. On the Bundesbank committee there are even representatives of the Lander or the regions, who can vote against the advice of the Bundesbank president.
The hard ecu is an idea, but in the end we regard it as diversionary and political rather than attractive in itself, although it would be reasonable to examine it further to see whether it would have any value as a transitional mechanism. We know that it is not the end of the road, although I suspect that many Conservative Members— certainly those who lend allegiance to the Bruges group —would like to see it at the end of the road. They do not want it to succeed, as the president of the Bruges group has indicated. [Interruption.] The Financial Secretary should stop swinging his worry beads.
I have several criticisms of the hard ecu. Undoubtedly it maintains transaction costs. It would also obscure responsibility for monetary policy and divide it between the central monetary fund, whatever it is called, and state banks. In the Government's proposed treaty provisions, article VI(5) says:
The national monetary authorities of the Member States shall be obliged to repurchase excess quantities of their national currencies held by the Fund.
That is strong stuff, if one's main preoccupation is with national sovereignty. I do not quite understand it. Nor do I understand, despite what the Chancellor said, what the attraction would be for borrowers. If there are realignments, two or more realignments could arbitrarily write up the debt in hard ecu. Overall, I do not think that it will have much future.
The Chancellor of the Exchequer said that Spain had shown interest. That is true, but I doubt whether that interest will be long-term. I suspect that it is part of the bridging operation which is going on in the Community, as is perfectly right and desirable.
We tried to make a small contribution to the debate by publishing this morning a pamphlet which we commissioned from Professor John Williamson, the economist, on the role of the United Kingdom in EMU. I will not quote at length what he said. The pamphlet is available; I commend it to the Chancellor and to hon. Members. Professor Williamson refers to phasing. Liberal Democrats accept phasing. Up to stage 2, we are firm, but stage 3 has no date anyway. We have to be clear that there is much more definite convergence before stage 3 than has been shown so far. That is not to say that, for example, Greece alone should hold up stage 3. I agree with the right hon. and learned Member for Monklands, East that regional and social funds will have an important part to play.
There are problems about convergence. One idea suggested by Professor Williamson, which is not entirely original in that it has been used already in a limited way in the United States, is that there could be a European minimum unemployment benefit. He said this morning:
I argue that there is a far stronger case for coordination of fiscal policy to complement monetary union than is generally conceded in Britain. One aspect of that coordination could help relieve the concerns about exchange-rate flexibility, namely, a European-wide minimum unemployment benefit, set at say current Portuguese levels. It would be paid out by


Brussels from a certain tranche of allocated tax revenue taken from member states, who would of course be free to 'top-up' the unemployment benefit.
In a sense, that is another argument for financial transfer to regions within countries which have problems. As I understand it, it operates in the United States and benefited Texas during the 1986 fall in oil prices which severely affected Texas incomes.
Despite the fact that I found the right hon. and learned Member for Monklands, East persuasive, amiable and clear all at the same time—something fairly rare in politicians—he did not sell ECOFIN to me as the great solution to it all. All that means is that the Council of Ministers shall determine monetary policy, and I do not consider that a good idea in the long term. Politically, it comes back to the desire that I mentioned earlier, which is felt by all politicians, to tune up the economy the nearer an election date comes.
I give the right hon. and learned Gentleman credit for the straightforward way in which he conceded that Government parties in the 1950s, 1960s, and 1970s misjudged and misrepresented the European Community and its opportunities. As a Liberal who was active in politics throughout most of the period, and certainly active in supporting my colleagues in the run-up to the 1959 election, I take a lot of pride in the consistency demonstrated by the Liberals, the Social Democrats, the Alliance and the successor party over a period of years.
The basic point made by the right hon. and learned Member for Monklands, East is pretty fundamental: that if this country is now set on a course within the European Community—and I see no alternative—it must play a full part in working through the various inevitable changes. It is not going to stop; it is going to move forward. The whole idea of delay, of producing diversions, is not a good one. We must face up to the fact that there will be economic and monetary union and, on that basis, make a constructive contribution to its shape.

Mr. Ray Whitney: I agree with the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) that the European Community is moving forward and that we must be part of that forward movement, but I suggest that he is a little hard on the Government in his remarks about the hard ecu, particularly when he dismisses it as solely a diversionary and political tactic. The perception which has grown among our European partners of the evolutionary value of the hard ecu proposals is a demonstration of their worth.
However, with due respect to the Liberal Democratic party, if I have the name right, of more significance among speeches from the Opposition Benches are the two contributions so far from the Labour party. First, from the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) the former Chief Secretary to the Treasury, we have a clear-cut call for devaluation. I would have hoped that the Labour party, of all parties, had learnt that the devaluation route is not a way out of economic and social difficulty for either this country or any other. The Labour party's many years of bitter experience should have shown him that.
The right hon. and learned Member for Monklands, East produced a very uncertain prospect. Most of it

seemed to be a black hole wrapped in cotton wool. The only possible proposal of interest was the ECOFIN proposal, which would be very ill received by many other members of the European Community, who have a much more positive interest in sound monetary policy than in the political controls which would be put in place by an ECOFIN system of the kind that the right hon. and learned Gentleman has in mind.
We are having this debate at a time when the Gulf casts its shadow, quite rightly, over our deliberations here, and economic and monetary union may seem a somewhat esoteric subject at present; nevertheless, we all understand that we are debating something of the most fundamental significance for the future of this country—that is, our collaboration and the part that we shall play in the European Community, and the great significance for us of monetary union or the movement towards it which is taking place.
We all therefore accept the crucial importance of the subject, and we must continue to understand that life will go on after the Gulf, that enormous problems such as the GATT round and the future of world trade must be resolved and that the European Community has a part to play in all this.
The second impact of what has happened in the past few days with Iraq has been the extremely depressing performance of the Community in regard to political co-operation. Some commentators and some of my hon. Friends have taken the view that it proves that the European Community has little future and that we should pick up our skirts, walk away from it and have nothing to do with those funny foreigners across the channel. I do not take that view—quite the opposite. Depressing though many of the developments are, I suggest that they mean that there is a challenge to be faced and a job to be done, and that much of that job is one for which Britain is extremely well qualified by our history and present performance. Far from being negative, therefore, the strong requirements for political, diplomatic and possibly military and security co-operation demonstrate that the European Community is where we need to be.
Fundamental to that is the question of monetary integration. I am glad that my right hon. Friend the Chancellor said that monetary integration was a logical development of the single market. That is precisely the point at issue. It is a message that should go out from this debate, that the Government and the majority of hon. Members—even though those of us who regularly attend European debates know that there is a kaleidoscope of opinion in the House, with no demarcation down the middle of the Chamber—believe that membership of the European Community is of great benefit and that this benefit must continue to be reinforced.
One way forward is to make sure that the single market works, and moves to improve monetary integration are an indispensable part of it. The direction and pace of that integration need, quite rightly, to be discussed, and in slow time, at the intergovernmental conference. It will be a great blessing if in such debates we can look at these great issues calmly, because when we do so we shall find that it is not a question of one country against another or of Britian against the 11 but that the pressures and views and stresses are very broad throughout the Community. There are many in France and Italy who feel deeply the sort of concerns that we have about economic divergence and the impact that it would have if nations tried to force the pace.
It is significant that the right hon. and learned Member for Monklands, East ducked the issue of regional funding. It would be hugely difficult to move towards the sort of covergence needed, bridging those massive gaps to which my right hon. Friend the Chancellor referred, between the economies and societies of the European Community, by regional funding. It is but one element of a complex advance. That is why the intergovernmental conference is there.
I commend the Government's approach. My right hon. Friend the Prime Minister has struck a successful and positive note in his exchanges since he assumed that office. I believe that he will receive firm response from our European allies. The French and Germans have precisely the same concerns, for example about divergence, as we do. Therefore, we have many more allies in the corridors of Europe than one might believe from reading the popular press or the simplistic, black-and-white naivety to which we are sometimes subjected in relation to the European Community.
None of us knows where all this will eventually lead. I am suspicious of people who grope for historical parallels and who say that it has never worked in the past. Welding the 12 nations of Europe together, to the extent that all of us wish to weld them together, is an historic development. None of us can forecast where it will end, but most of us accept that the process must be kept moving. I am confident that my right hon. Friend the Prime Minister and his Front Bench colleagues recognise that fact.
Nothing should be said in the House tonight which will leave our partners or the world in any doubt about the Government's commitment to economic and monetary convergence. If we send that sort of negative message, it will have an immediate impact on the level of the pound, and the long-term impact would be even greater. We should not be misled by our present strong and happy relationship with Washington. We should not be led to believe that the old-style special relationship is back. Yes, there is something special about our relationship. When the famous chips are down, there is a firm relationship between Washington and London.
However, the fundamental questions about economics and power will not go away. The Americans believe that the European Community is an entity which is here to stay, with which they will have to deal in the future. They want us to be in the Community, playing a leading part and making a strong contribution. So do I, and so do the majority of people in this country.

Mr. Peter Shore: There is an air of unreality about this debate, and it is not solely due to the fact that our thoughts are concentrated on the Gulf, as the hon. Member for Wycombe (Mr. Whitney) said, and that this debate seems to be somewhat remote from our major concern. It has been misleading to put so much emphasis in the debate on our proposals for the hard ecu, as the Chancellor and my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) have done.
It was interesting to have that subject elaborated, and I do not take the severe view that some hon. Members have taken of the Government's proposals. However, they are relevant only to stage 2 of the three-stage Delors plan. Within that context they may have a serious reception on

the continent of Europe, but they divert us from the main issue, because the other 11 countries are really concerned not about stage 2 but about the political objective. They are concerned with the political unionist objective of creating a single currency as a necessary means to establish a union state in western Europe. That is what it is all about, and unless we understand that clearly we may easily be misled and locked into, or tripped up by, relatively technical issues when the main issue is direct and political.
When I re-read the evidence that the Prime Minister—then the Chancellor of the Exchequer—gave to the Treasury and Civil Service Select Committee on 25 July 1990, I was impressed. In his opening statement to the Select Committee he said:
it seems to us that the Delors package for Stage 3 would involve transfer of sovereignty from the United Kingdom and from Parliament of a sort neither the Government nor Parliament would find themselves able to accept.
The Government have come near to restating that during this debate, and I am glad to see that the Financial Secretary is nodding his head in agreement. That is fundamental, and I wish that my right hon. and learned Friend would state with equal clarity that he accepts that a single currency—and all that goes with it—would involve
transfer of sovereignty … of a sort neither the Government nor Parliament would find themselves able to accept.
That is not merely party will but national will, and I hope that my right hon. and learned Friend will come to accept it. A single currency does not merely affect our constitution and our capacity and right to govern ourselves, but is also an economic issue of fundamental importance.
I have heard different views expressed about the use of currency revaluation and devaluation as a means of dealing with serious economic disequilibria and problems such as a major recession, massive unemployment and a huge trade deficit. Everyone knows that devaluation has a downside, and no one but a fool would recommend it as a weapon to be used other than in very serious circumstances. That was our post-war experience. From the end of the war, and from Bretton Woods, we had a fixed but adjustable exchange rate. As my right ho n. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), the Chairman of the Public Accounts Committee, reminded the House recently, we changed the exchange rate only once in 1949—it had not been changed since the war—and there was one further devaluation in 1967 from $2·80 to $2·40.
If one maintains the exchange rate for a substantial time, no one can say that one is using exchange rate policy frivolously. The major argument, which I think everyone in the country would agree with, was that if the Labour Government of 1964–70 made one mistake which was more searing than any other, it was that they delayed the necessary devaluation. They should have devalued earlier. The country's economy benefited from it.
If anyone had proposed to the United States four or five years ago, or even now, that it should permanently lock its exchange rate to that of the yen, what would have happened? What would happen if it did that now, having gained some benefit and recovery from a floating exchange rate policy in the past few years? If the dollar were to be frozen against the yen, I have no doubt that in a few years the United States would find itself increasingly uncompetitive against the Japanese. Unless the Unites States were prepared to accept the Japanese eating up its industry and becoming the owners of United States real estate and


shares, it would feel bound to break the exchange rate's parity that it had established. We know that to be true, so why should we talk not about the exchange rate mechanism, which is a fixed but changeable regional version of the International Monetary Fund, but about an entirely new system which in no circumstances would ever allow us again to change our exchange rate?
If we were not successful economically to the same extent as our partners may be, we should suffer most profound damage as a nation and as an economy. We should find unemployment rising to pre-war and indeed higher levels, and there would be no escape from it. British industry would not be profitable and would close down operations in this country, with new industry locating on the continent of Europe or in other places where sustained growth and profits were possible. All the marvellous training of skilled people and graduates coming out of universities, higher education and other establishments that my right hon. Friends are determined to create would have to look for jobs, not in their own country, but across the channel on the continent of Europe. That is not a vision of the future that I find attractive.
I think that it is almost an act of national suicide for any country, knowing that it is entering a group of nations in which clearly we are not yet as strong as we should be or may be, or in time will be in comparison with Germany and others at present, to expose itself to merciless competition with the Germans whom we know will destroy this country's industry and its jobs. Nobody should impose this on the British people.
I feel that the opposition in principle to EMU is on two grounds. First, it amounts to national economic suicide. Secondly, it is an outrage to the whole tradition of self-government in this country. Those should be the two principles on which we say no to what is being put forward in Europe.
The draft treaty has considerable relevance to what we are talking about. Although the Chancellor of the Exchequer rightly said that, after all, this is only the Commission's document, it drew up this document not out of the air or its own cerebrations in that great office building, the Berlaymont, but after taking part in and guiding the major discussions that have been held in the past year with all of the Community members. That is why the document has force and is very powerful.
Alongside it, and in no way disagreeing with it, is the document put forward by the governors of the central banks. Reservations have been expressed by some people to the effect, "If we can only get this put right, it will make such a difference," but in no way are those reservations expressed in treaty terms comparable to the creation of a central bank and other institutions that go along with the creation of economic and monetary union.
Economic convergence is obviously a way of dodging the whole issue. If we did have such convergence in terms not merely of rates of inflation but of productivity and output with our major competitors in the Community, we would not worry. There would be no problem, for we would be doing as well as they were. But who has ever heard of nations over time achieving the same rate of productivity and growth of output? Of course that has not

happened. In the past, our currency has reflected that in substantial movements against other currencies on the continent.
I am very much in favour of getting down our rate of inflation and we still have a lot to do in that regard. We could have a rate of inflation no greater than that on the continent of Europe, in Germany, but if we did not have the same rate of productivity, output and growth, we would still become uncompetitive in price terms and would therefore be at an accumulating competitive economic disadvantage. Economic convergence does not help us very much.
Those who take the view that we can put off the whole thing, that we must not have dates in mind or be fixed to a timetable and that all is well, have only to consider the fact that the timetable is written into the draft treaty. Stage 2 begins on 1 January 1994, and stage 3 will, following a review and decision, be taken not later than the beginning of 1997—probably during the period of the next Labour Government, which does not seem very attractive to me, or the Government after that.
I do not know whether the House is aware that those who have looked seriously at this proposition—and not many people look seriously at the consequences of economic and monetary union—have always said that there will have to be a tremendous regional policy, a huge transfer of resources. The only serious study that has been made was that conducted by Sir Donald MacDougall, who used to be chief economic adviser to the Confederation of British Industry, a very distinguished and independent economist. He made the study as long ago as 1977. His finding was that the budget of the Community would have to be at least seven times as large as it is to begin to finance the transfers which are required. That was before Spain, Portugal and Greece became members of the European Community.
How big a European budget do the advocates of this madness envisage, and what method of financing of that budget is envisaged? It would have to be a budget which not merely raised this vast amount of revenue from the nation states, but it would have to be redistributed on a basis that helped us, and no doubt the Portuguese, the Spaniards and others as well—at whose expense? It would be at the expense of Germany.

Mr. Favell: The right hon. Gentleman is making a very important point extremely well. After more than 20 years of the common agricultural policy, the penny is now only beginning to drop that farmers in Greece, Portugal, Germany and Britain behave in different ways. How much worse will it be when we have to ensure that boot manufacturers, cycle manufacturers, steel makers and coal producers have to behave in the same way to achieve this convergence?

Mr. Shore: I do not think that there is time to answer difficult questions of the kind that the hon. Gentleman has posed.
I turn from the business of the convergence and regional policy to another major issue which has not been raised in the debate. We are talking about economic and monetary union. All that I have said so far, and virtually all that the House has had to say so far, has been about monetary union; but economic union is here, too. It is spelt out in a number of interesting and important articles.
The Chancellor of the Exchequer and my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) are anxious to retain the powers of Chancellors over taxation and public expenditure. No doubt they delight in the fact that in the latest presentation the original Delors proposal for binding rules that would limit the powers of Chancellors of the Exchequer has been withdrawn. It has been withdrawn in favour of what are now called guidelines.
I draw the attention of the House to the guidelines in the draft treaty presented by the Commission. The guidelines refer to the following matters:
the development of Member States budget balances; the control of production costs … the level and promotion of saving and investment".
There is reference to other matters, and the article continues:
The Council acting by a qualified majority … shall adopt these guidelines".
That of course refers to guidelines laid down by the Commission. It continues:
On the basis of an annual report of the Commission, the Council shall each year decide … on the adjustments that need to be made to the multiannual guidelines".
Later, it says that the Council, acting again by a qualified majority, may, where necessary, adopt recommendations specific to each member state determining the general thrust of its economic and budgetary policy.
Then there is the following passage:
The Commission shall see to it that specific recommendations are implemented … A recommendation concerning the measures which must be taken to rectify the situation".
That will be submitted privately to the Council of Ministers; if the member state does not obey within a month, the Commission may make its proposals public. The measure is, of course, deliberately designed to destabilise and undermine the authority of a Government who pursue an economic and budgetary policy with which the Community and the Commission disagree. It is not a very welcome prospect. Although they have not the same strength as binding rules, these are serious guidelines.
Moreover, the harmonisation proposals for indirect taxation, although far from complete, are intended to prevent any movement away from the existing average. Following the promulgation of those proposals, indirect taxation in the form of VAT, excise duty and, I am willing to bet, corporation and company tax will become impossible within a few years.
Future Chancellors of the Exchequer will not have much freedom of action. There will still be a Budget, public expenditure exercises and the ability to raise revenue, but, as the indirect taxation will be bound by treaty rules, it seems likely that the only revenue that the Chancellor will be able to raise is income tax. I foresee a significant limitation of power—quite apart from all the damage that would result from a fixed exchange rate, and from economic and monetary union.
We have heard a good deal about the importance of accountability. The draft treaty mentions that, as does the other document submitted by the bankers. The treaty states:
In performing their duties, the European Central Bank, a central bank of a Member State and members of their decision-making bodies shall neither seek nor take instructions from the institutions of the Community or its Member States or from any other body.

It is written into the terms of reference that the overriding priority must be price stability, and that external influence exercised by the Community or by individual nation states must be removed.
Never in my life have I read a document that gave bankers more power over economic, national and Community life. I am referring not to the bankers' document, but to the Commission's document, which takes account of the political worries that have been expressed.
I find the whole prospect extremely unattractive. I should like to send a firm message—sadly, I cannot, because we are debating on an Adjournment motion—to the effect that we are prepared to co-operate as much as we can, and are not opposed to some policy co-ordination where it makes sense; but, by God, we will not, not, not allow majority rule from Brussels to determine the welfare, prosperity and self-government of the British people.

Mr. Quentin Davies: I ought to begin by reminding the House of my association with two City institutions, Morgan Grenfell and Dewe Rogerson.
It is always a privilege to follow the right hon. Member for Bethnal Green and Stepney (Mr. Shore)—although I rarely agree with him, and did not today. I was, however, extremely amused when he said that no one but a fool would necessarily urge devaluation. I cannot recall one occasion, in all the time I have followed the right hon. Gentleman's political utterances—whatever the state of the business cycle, and whatever the parity—when he did not urge that course. His rejection today of the idea that we could ever compete with Germany in regard to inflation or productivity struck me as the philosophy of despair, and I do not think that any Conservative Member would accept it.

Mr. Austin Mitchell: Will the hon. Gentleman give way?

Mr. Davies: I am sorry, but I am under considerable time pressure.
I wish to make five points, and I hope that the logical connection between them will emerge as I proceed. First, I welcome the Government's decision to join the exchange rate mechanism of the European monetary system. I welcomed it in October, and I do so just as warmly now. I trust, however—I am expressing confidence, not just hope—that when the decision was made, the Government did not consider the ERM a definitive solution to the monetary problems faced by this country or, indeed, by the European Community as a whole.
I have no doubt that, in the short term, the ERM can act—indeed, it is already acting—as a very effective mechanism to enforce greater inflationary and monetary convergence within the Community. Clearly, we can only benefit from that, as our inflation rate is one of the highest. In the longer term, however, the ERM—like any other attempt in human history to establish a fixed exchange rate system—will inevitably run up against the fundamental contradiction that is common to all such systems: if there is no intention that parities should ever be altered, there is no reason for the retention of separate currencies in the first place. A single currency is a much better idea.
Once it is accepted that in certain circumstances the parities will be adjusted, there will inevitably come a time when the market anticipates such changes. That will mean extremely high economic costs for member states, which must adjust demand management in their own economies —running demand at a much higher level with inflationary consequences, or at a much lower level with recessionary consequences, in order to maintain the system.
Let no one suppose that we are in a better position to avoid such problems than we were at the time of Bretton Woods. On the contrary, we are in a much weaker position to sustain such a system over a long period, for the simple reason that we now have almost entirely liberated capital movements in the OECD area. Moreover, the volume of capital transactions in that area amounts to more than 10 times that of current transactions in the world. Things were very different when almost all Governments operated exchange controls, and capital movements were a residual balancing item largely controlled by Governments. We must look beyond the ERM, and consider where it will and where it should lead.
Secondly, and for much the same reasons, I warmly welcome the Government's proposals for a hard ecu. The Chancellor of the Exchequer set out the advantages with great lucidity today and described the sharp anti-inflationary teeth built into the British plan. That, too, will be a powerful mechanism to enforce increased monetary and inflationary convergence in the Community. If accepted, the hard ecu proposal will enable us to establish the institutional basis for a European monetary institution, which could become a European central bank. Clearly, we cannot go further until the institutional structure is in place.
My third point is this. Both moves, although important in themselves, point to the emergence of a single currency at some point in the future, as the Financial Secretary to the Treasury has explicitly recognised. Do we want a single currency? That is the great question. Is a single currency in our interests? Opinion may be divided, and that is precisely why I wanted to speak in today's debate.
There is considerable academic literature on the question of what should constitute an optimum currency area, and there is a consensus remarkable within economic science that, so long as certain conditions are met, a single currency should pertain in an area and that the economic cost of separate currencies is then greater than that of a single currency.
Those conditions are fundamentally twofold. One is that there should be integrated product markets and the other is that there should be integrated factor markets within that optimum currency area. With the single market programme, we are achieving an integrated product market in the European Community and we already have an integrated factor market. There have been integrated labour markets for quite a long time, and integrated capital markets since last year when exchange controls within the Community were finally abolished. I have little doubt that in those circumstances the advantages of a single currency are potentially enormous.
The first advantage, which has often been mentioned in this context, is the abolition of the transactional costs which at present are borne by individuals when they travel and by businesses when they trade across the frontiers

within the Community. Those costs will largely remain under the ERM, as is generally recognised. A single currency would also bring about the abolition of the foreign exchange risks which currently burden business and deter some people from quoting when they otherwise might. Thus at present output is reduced and employment foregone. The ERM will help a little with the foreign exchange risks but will not, of course, remove those risks.
The third advantage, which is less often recognised in the debate, is the fact that a single currency will remove the informational barriers to trade which are constituted by fragmented separate currencies. Those barriers are considerable in all aspects of trade and particularly crippling—perhaps even fatally so—in certain sectors of activity such as retail financial services, where the Cecchini report indicated that there was substantial scope for an increase in the wealth of the Community through market integration, and where we in this country believe that we have potentially a particular financial advantage. Those are very important benefits to play for. If we can achieve them, it is our duty to do everything possible to secure for our people, our businesses, our employees and our consumers the substantial benefits that would flow.
My fourth point is that, because the stakes are so high, if we go for a single currency we must get it right. We must not rush our fences. Indeed, if we got it wrong we might lose an historic opportunity and that would be a great dereliction of the duty that we owe to the people who sent us to this place and to future generations. Therefore, the whole matter must be carefully thought through and worked out. The Government are absolutely right to be cautious, to ask the hard practical questions along the way and not to be carried away by any kind of facile Euro-rhetoric. I congratulate the Government on their pragmatic and positive approach.
Judging by the speech in the House today from the right hon. and learned Member for Monklands, East (Mr. Smith), it is almost certain that, if the Labour party were in power, it would not get it right; in fact, it would get it appallingly wrong. I will dwell on one or two instances of that. Within a single currency area in the European Community, there will be internal payments disequilibria as there are within this country, as there are within the United States and other single currency areas. There are current payments disequilibria between the west end and the east end of London.
How will these be coped with? The right hon. and learned member for Monklands, East seemed to presume that they could be dealt with by being recycled through compulsory fiscal public sector transfers. That would be an absolute disaster; we would go right back to the bad old days of subsidising failure and inefficiency and penalising success. I cannot think of a more fatal way to start off this important monetary venture.
Of course, if we are to get this right, current payments disequilibria must be recycled through the private sector capital flows that will take place in the Community. That is the way it is done within the United States—a very substantial single currency area—and indeed, within this country at present. That requires changes that will not come about overnight. At present the banking system in the European Community, the system of distribution of securities, the portfolio preferences of both institutional and private investors are all much too narrowly based nationally. That will not change overnight. It must change


in order to permit those private sector capital flows to achieve their proper economic purpose. I have no doubt that in time they will succeed in doing that.
Current payments disequilibria must also be adjusted through changes in output and prices. For that reason, we need more, not less, flexible markets. Those Opposition Members who are always urging us to be more communautaire and at the same time accept the notions of the European social charter are in fundamental contradiction with themselves. If we want a single currency area to operate effectively, we must have more flexible labour prices and markets. Anything like the social charter which creates new rigidities and new costs is thoroughly unwelcome.
My final point is particularly important. Although I believe that the Government are already persuaded on this point, I hope that no-one in this House will have any illusions about it. In the course of these negotiations with our continental partners, should they arrive at a position where inexorably they go ahead with a single currency, regardless of what we propose to do, then I put it to the House that we cannot in any circumstances remain apart from that single currency. Very briefly, I will set out four concrete and specific reasons why that is so.
First, trade between this country and the Community in such circumstances would be conducted in that single currency. That would mean that our producers and our businesses would incur all those transactional costs and foreign exchange risks while their continental competitors would not suffer them. That would handicap our industry indefinitely. Secondly, the same position would apply to investors from ourside the Community who might be looking to invest in this country and to build capacity here targeted at the Community market as a whole.
An example is the Japanese, whom we have welcomed here in that context in the past few years. They would not come here in those circumstances, or they would be much less likely to come, simply because any business located here would face those transactional costs and risks in servicing the continental market. That again is a reason why we dare not go down that road.
Thirdly, it would make it impossible for the financial services sector in this country—here I refer to the retail financial services sector—to cross-sell its products in the Community, whether they be insurance products, unit trusts, or whatever. They would not get the benefit of the branding and the track record and of common computer systems and the common training of salesmen. They would have to repackage and produce different products on the continent, and that would be a very severe handicap in a field in which there is otherwise an immense amount to go for.
Finally, and most significantly, in the circumstances in which there was a single European currency and sterling remained outside, that single currency would become an international reserve currency which would be in almost every international portfolio. Sterling, on the other hand, would be considered a much more risky and volatile currency which was less desirable to hold. It follows, as night follows day, that international holders of sterling would demand a yield premium for holding it. What does that mean? Translated into ordinary language, it means high interest rates. We should be condemning ourselves to a regime of interest rates higher than those of our

Community partners indefinitely. That position would be intolerable for any responsible Government of any party to accept.

Several Hon. Members: rose—

Mr. Deputy Speaker (Sir Paul Dean): Order. I remind the House that the 10-minutes limit on speeches is now in operation.

Mr. Ron Leighton: Joining the exchange rate mechanism was a preparation for and a first step towards economic and monetary union. It was a dummy run for a single currency. I am willing to give a prize to anyone who has seen any of the promised benefits from the exchange rate mechanism. One result is that we can no longer use interest rates for domestic purposes because virtually their sole purpose is to defend the exchange rate. Our domestic economy is crying out for a reduction in interest rates, but that is denied us because, contrary to the promise, the pound is insecure in its ERN band and few believe that it will be possible to hold it there.
In the meantime, the high interest rates push us further into recession, as the rapidly growing number of unemployed know to their cost. Already, the ERM is doing great damage to our economy. The rate of DM2·95 is becoming ever more unrealistic and the pound is becoming artificially high. The ERM now puts a price surcharge on all our exports.
We must ask ourselves how we are to close our trade deficit, especially that with Germany. It is a delusion to think that we can do it in time by supply side measures, and by education and training alone. We shall not, by some miracle, reduce our unit labour costs and increase our productivity and our output per head faster than the Germans or quickly enough, if at all, to achieve that in the foreseeable future.
There are only two main methods of approach. First, we can allow the exchange rate to be altered to a more competitive level; or secondly, we can have deflation which pushes the economy into recession and thus reduces the demand for imports, and is what we are doing now. That is graveyard economics, which is grossly inefficient and socially unjust. It reduces output, causes unemployment and hits those who are made redundant and those in manufacturing industries.
If the exchange rate cannot be altered, as we heard from the hon. Member for Stamford and Spalding (Mr. Davies), the method of adjustment has to be real wage reduction. We are already being told that ERM means that wages must not go up with inflation. Whose wages are to be reduced? It is those of the workers in manufacturing and in the traded goods sector. It is the blue collar workers and not the people in the City who will be hit hardest. The dummy run of the ERM is already doing us great damage.
After years of talk about what economic and monetary union might mean, and about whether it might mean anything or nothing, we are coming to decision time. At the inter-governmental conference, there are new treaties and the blueprint to which my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) referred. We now know what that means. It means a single currency and a single monetary policy because there is no subsidiarity in monetary policy; monetary policy is indivisible. It means a single currency and a single


monetary policy controlled by an unaccountable central bank. Inevitably, we should hand over powers over economic affairs, over budgets and over taxation to traditionally conservative central bankers, which would involve a huge loss of democratic self-government.
Control over taxes will go, both because of Commission policy, to which hon. Members have already referred, which talks about the co-ordination of tax policy, and because of market forces. If we are to have the so-called "level playing field", capital will move to where it will get the highest return and to where taxes are lowest. With a single currency and unrestricted capital flows, it would be a delusion to think that the Government could exercise their taxation policies to promote egalitarian or expansionist aims that do not have the support of international financiers.
Why should we want all this ? The hon. Member for Stamford and Spalding said that we should have lower transaction costs. If that is the reason, why do we not go for a world currency? Economic and monetary union will not reduce transaction costs with the yen or with the dollar. Transaction costs, even in the European Community, are unlikely to disappear, because banks will still incur costs when they transfer money from one country to another. In the United States, clearing cheques from one state to another still costs money.
The costs to this country in lost jobs, in lost prosperity and in lost output far outweigh any alleged gains on transaction costs. Anyone who imagines that a single currency is merely a technical matter which always brings benefits should look, as has been suggested previously, at what has happened in Germany with German monetary union. Otto POW of the German Bundesbank said that it was economic and monetary union in a nutshell. I like to call it monetary union in a laboratory experiment.
What was the effect of monetary union on two economies with different rates of productivity? It was lethal. It was a death blow for German industry and brought mass unemployment. The introduction of the deutschmark did more damage more quickly than a dozen panzer divisions could have done. The west Germans are now pouring in trillions of deutschmarks to rescue the economy of the German Democratic Republic, which is a country of only 18 million people.
The east Germans are lucky; they have a rich big brother who rescues his kith and kin. Even that is putting a big strain on the west German economy. Are the Germans really likely to do the same for us, for Greece, for Portugal and for Spain? Would they do it for the other eastern European countries? Of course not. We shall be on our own, bearing the full brunt of the cost.
I am brought to another realisation. Economic and monetary union will divide Europe; it will not unite Europe. It will be a barrier to enlargement. The struggling new democracies of eastern Europe could not cope with a single currency or with economic and monetary union. They have seen what it has done already to the GDR which, after all, was the most advanced country in COMECON. Those countries have no big brother to bail them out. Those who want EMU do not want enlargement. The French want to institutionalise their arrangements with Germany; they are not worried about bringing in the eastern European countries.
I want to emphasise that we are missing a major opportunity by concentrating on the wrong agenda. We should be considering how we react to the end of the cold war and to the democratisation of central and eastern Europe. Our response is hopelessly inadequate. Here is a chance to unite the whole of Europe in an association of democratic, self-governing states with the sort of vision that we had with the Marshall plan. Instead of that, we are constructing an exclusive ghetto in western Europe on a basis that will shut out half Europe. We are throwing away the chance to put a permanent end to the post-war division of our continent. Having removed the Berlin wall and the physical barriers, we are now re-erecting damaging economic barriers right across Europe in a way that will abandon and impoverish the struggling countries of eastern and central Europe.
Everyone says that there can be no EMU without convergence—without levelling out the differences of economic circumstances. We are told that there must be convergence in growth, in interest rates, in inflation rates, in productivity, in wealth, in standards of living, in budget deficits and in trade balances. Unless that is done, there will be dislocation because the level playing field will be a battlefield. There will be winners and losers. Whole regions with weaker economies could be blighted and turned into depressed areas with mass unemployment and closed industries. At present, there is not convergence but divergence, because the process of capital accumulation and of labour migration—in other words, market forces —tends, uncorrected, towards the cumulative reinforcement of those differences. The rich areas get richer and the poor areas get poorer.
What is the answer? Everyone says that it is regional policy. Having uttered those words, they think that they have solved the problem. They do not examine what regional policy would mean. I do not have time to go into the way public expenditure is redistributive or to consider how existing federations, such as the United States, Canada, Australia and Germany, have horizontal transfers of wealth. The budgets of most countries in the European Community take about 45 per cent. of gross domestic product. The European Community budget is about 1 per cent. The wealth and the resources for a regional policy are not there.
The present regional fund is derisory. In 1990, the European regional fund had a budget of 4·7 billion ecu, which is £3·5 billion. That is 0·1 per cent. of the collective gross domestic product. Sir Donald MacDougall said that a budget of 7 per cent. devoted solely to regional policy was needed. That is a budget 70 times bigger than the existing budget.
One way to approach this is to look at Northern Ireland, where in our regional policy we spend £1·7 billion. That works out at £1,100 per head. There are 140 million people in the areas eligible for regional fund assistance in the European Community. If we had a policy there of £1,100 per head it would work out at £154 billion—4·6 per cent. of GDP. Currently it is £3·5 billion. Instead of the £154 billion which we would need to do there what we are doing for Northern Ireland, the budget is only £3·5 billion. So we would have to spend more than 44 times as much.
There is no chance of getting that sort of regional policy, and Conservative Members are opposed to it anyway.

Mr. Michael Spicer: The Government are absolutely right vigorously to resist the formation of a single European currency. From the point of view of Britain's national interest, it is living dangerously enough to artificially link our currency to that of another country, as we did, for instance, in the 1920s, through the gold standard, to the dollar, and, as we do today, through the exchange rate mechanism, to the deutschmark. But, as was the case in the 1920s, in these circumstances at least we retain a semblance of national sovereignty—so that if, for instance, unit costs of our industry are high in relation to those of the country with which we have chosen to link ourselves and there is therefore pressure on the artificially chosen exchange rate, we have the option of deflating the economy, as was done —with, it has to be said, disastrous effects—under the gold standard.
However, we also have the choice, in the present circumstances, of realigning our currency. That does not necessarily mean, as the right hon. Member for Bethnal Green and Stepney (Mr. Shore) said, devaluing all the time. That is a very pessimistic view of the future of our country. It is a question of allowing our rate of exchange to reflect accurately relative unit costs; and, as we get more efficient, it may well mean revaluation. We also have the option, in the present circumstances, of pulling out of the artificial straitjacket altogether, as was done in the case of the gold standard.
If, however, we were to adopt a single European currency, we would be left with no semblance of national sovereignty. Contrary to what the shadow Chancellor of the Exchequer, the right hon. and learned Member for Monklands, East (Mr. Smith), said, this cannot be fudged. As my right hon. Friend the Member for Hertfordshire, North (Mr. Stewart) said earlier, a single currency means a single Government. It cannot be any other way. A single currency requires a single policy towards inflation. It therefore requires a single budget, a single monetary policy, and a single tax-making authority.

Mr. Quentin Davies: rose—

Mr. Spicer: I shall not give way, because my hon. Friend had 20 minutes and I have only 10 minutes.
Of course, a proportion of the tax-making decisions could be devolved to member states, but the overall budgetary authority could not. The argument is made that in pooling our sovereignty we would, as a nation within a European monetary union, grow in stature and wax in world influence. There might, I suppose, be some merit in this view if it could be shown that we shared some overwhelming common purpose with the other nations of Europe which justified our joining them to become, in effect, one country, because that is the logic of what is involved in a single currency.
Mention has already been made in the House today of the apparent lack of common purpose among European countries in the Gulf. I recognise, of course, that some of my hon. Friends and some hon. Gentlemen have drawn different inferences from this, but the issue, in my view, goes deeper even than whether the European countries are willing to supply us with spare parts for our forces fighting for international security. The fact is that we are different nations in Europe, with differing interests, requiring different economic and monetary policies. Britain, for

instance, still exports more per head of its population than does Japan. Therefore, in terms of narrow economic self-interest alone, there must be great British concern to maintain strong bilateral links with the rest of the world.
That does not mean that we should not continue to strengthen our economic ties with Europe. In particular, as my hon. Friend the Member for Surrey, North-West (Mr. Grylls) said in an intervention, we should be pressing hard for a free flow of capital around Europe. We have not begun to have that in many respects. We should be pressing for fully convertible currencies reflecting not some artificial exchange rate but the unit cost differences between the various countries. But a pre-emptive leap towards federalism through the medium of a single currency would be, to say the least, premature.

Mr. Austin Mitchell: The enthusiasm for economic and monetary union demonstrated by pro-European, pro-market Members or even by our Front Benchers shows a willingness to throw away vital weapons of economic management as a badge of communautaire identity. It is a defiance of the basic principles of economics. The exchange rate is simply a market clearing mechanism. The competitive exchange rate in that situation is simply the rate at which a nation can trade, balance its payments and sustain that balance of payments in conditions of full employment and sustainable economic growth.
That is a market decision. We can influence the market and the exchange rate by high interest rates. The present Government have continually maintained the exchange rate too high by interest rates. We can do it by the way we run the economy. The point is that the exchange rate is essential to our trading ability. For proof of that, one need only look at the balance of payments of this country's manufacturing trade with the United States in 1986, when we had a substantial surplus of about £1 billion, and the deficit that we had last year of about £3 billion simply because the dollar had gone down and the pound had gone up since 1986. The exchange rate is absolutely vital.
I accept that there are divergent interests in connection with the exchange rate. Financial interests in this country want it high. Clearly, as they want to invest more overseas, they want a high and stable rate; while industry wants a low, competitive exchange rate so that it can produce more and sell it overseas. The rich, who have money, want a high exchange rate. The mass of the people, who want jobs, industry and economic expansion, need it to be competitive, and that is the interest of the Labour party.
It therefore follows that it was folly to enter the exchange rate mechanism. It was folly, first, to attach ourselves to fixed exchange rates, the bad old system; we are attempting to fix the needle on the barometer. The markets should decide that. This is not an argument for devaluation; it is an argument for markets. I cannot understand why a Government so attached to markets should want to defy markets on the exchange rate—the central issue. We cannot fix the needle on the barometer and control the weather. It just cannot be done. Also, we cannot transfer control over that vital exchange rate to competitors who have a vested interest in seeing us overvalued so as to sustain their access to our market That is the second folly.
The third folly is to go in at an overvalued rate, a rate that is substantially up on the level of the last quarter to 1986—about 23 per cent.—against the deutschmark. It is no use preaching to people to hold wages. If manufacturing industry's workers took a cut in wages, that still could not get us back to the competitive level of the last quarter of 1986. We have embarked on the folly, with the same consequences that Keynes described in "Economic Consequences of Mr. Churchill", attached to our return to the gold standard at an overvalued rate in 1925.
The consequences are now the same—increasing unemployment and bankruptcies, a reduction of taxation because corporation tax will be down, and increases in spending because unemployment will be up, so Government surplus moves into Government deficit and the economy winds down. We are screwing down the lid on the recession on which we embarked. That is disastrous when one considers that our manufacturing output is scarcely higher than it was in 1973.
It was a folly to enter the exchange rate mechanism, and a folly about which the Labour party should have warned. We said that we should enter at a competitive rate, but we kept terribly quiet when the Government went in at an uncompetitive rate. The consequences will be ruinous. If this country is to succeed, and if we are to stop the remorseless wind-down into depression and the rise in unemployment, there must be a substantial devaluation. It will come. We shall try to hold back the tide on the mentality that, at this stage in the economic cycle we need a futile gesture—that is certainly what the City wants—but it will come, and better that it comes early rather than late.
Economic and monetary union is a further step down the same road to folly. The currency is rather like the atmosphere around a planet—the framework that sustains life. It sustains independent economic life.

Mr. Nigel Spearing: It is like the climate.

Mr. Mitchell: It is like the climate in that sense. That is the role of the exchange rate. We cannot abolish it without disastrous consequences for the life that is sustained in that climate. Hon. Members have argued that transaction costs will come down—a huge gain, particularly when we are in deficit. Transaction costs come down for importers as well as for exporters, and with us in substantial deficit that is paying a benefit to them. Sam Brittan argued in the Financial Times that the balance of payments vanishes, and so it does. It vanishes because we must then cut our ability to buy imports to our ability to produce exports to pay for them. We must cut our wages and our standard of living.
That is why it is so extraordinary that the Labour Front Bench should advocate membership of economic monetary union. The consequences of that fall on workers in manufacturing—those on the industrial front line. We are actually shelling our own front line in the industrial war. It will be used to depress, deflate and break the power of the unions and the working class—to increase unemployment—and the consequences of that will fall on manufacturing industry, our front line. Our standard of living will be driven down. We shall become another East Germany. The consequences of one currency for East

Germany have been disastrous in terms of employment, jobs and manufacturing. They have big brother to help them out and cushion the blow, but we shall not.
Some people say, "Let us have a machinery for redistribution." I ask those who are enthusiastic about economic and monetary union, "Why concede the principle before the framework of redistribution is agreed? It will be difficult to get it. There will have to be massive transfers on the scale that Opposition Members have indicated. That will require a huge bill to be paid by Germany. Is Germany going to pay it? Is the SPD so enthusiastic about Britain's future that it is prepared to impose those taxes—those burdens—on the German economy? Do our politicians want to turn us into the plangent, begging, scrounging nation of Europe, dependent on handouts and regional aid for our economic existence because we abolished the atmosphere that sustained our own economy? Is that a future for a great and powerful nation? Is that a future on which we can build socialism and a better society? It is not.
That is not Labour party policy, either. Policy, as adopted by conference in "Meet The Challenge, Make The Change", is of opposition to economic and monetary union. That policy was accepted by conference and put forward by our Front Bench. Our leader told us in "Looking To The Future" that its commitments are still binding. It cannot be changed until conference changes it. I am therefore espousing Labour party policy on this issue.
I did not enter the Labour party or Parliament to institute a system of rule by central bankers over this country. I entered Parliament to build a fairer society in this country by providing full employment, building our national economic and industrial strength because the nation depends on its industrial base. It does not depend on mythology or sovereignty. I entered politics to multiply well-being and to get a better life for our people. We do that by developing and building industrial strength, by generating growth and distributing it fairly among our people.
In other words, economic growth is central to my philosophy. It will not be available in the new regime of economic and monetary union. I entered politics to build a better society, not to institute a system of rule by central bankers or to ensure that east Germany is builded here in England's green and pleasant land.

Sir Peter Hordern: There is something to be said for a single currency. Convenience in transactions has already been mentioned. However, I do not believe that convenience is everything. Nobody now argues that a move to a single currency based on the present basket of currencies does not mean the convergence of economies within the European Community. Delors has said that and the Bundesbank has said that—indeed, the Bundesbank made the point that there should be no artificial deadline before economic convergence is achieved, and it sees it going a long way ahead; otherwise, the single currency cannot conceivably bear the weight placed upon it. Surely the Bundesbank should know. From figures that it has given, I understand that the net public sector borrowing requirement last year was DM100 billion. This year, it is due to go to DM140 billion because of the cost of restoring East Germany.
If anyone suggested that we should have such an enormous increase in our public sector borrowing requirement, we would be absolutely horrified. It is the kind of thing to which we are accustomed under Labour Governments. For that to happen in Germany is truly astonishing. However, if that is happening in the strongest economy in Europe, what about less well-endowed countries such as Greece and Italy with their enormous financial deficits? What would it cost to correct such enormous imbalances, and who is to bear that cost? If there is to be a more equal performance on the part of all European countries, the inescapable consequence will be a large Government transfer from one country to another.
Of course, that is called the European regional policy. It means a substantial transfer of money from one country to another. I note that, already, the French are calling for Mr. Solomon Binding who advises incomes policy to be run by the Community. I have no objection to the transfer of funds from one country to another, but that should be done by removing barriers to investment—just what 1992 is supposed to be about.
There will be a call for massive funds to be transferred from richer countries to poorer countries in the European Community. That will inevitably mean higher taxation. Worse, it will mean moving gradually to a command economy, no doubt run by Brussels with substantial offices in other European countries. Our experience—surely it is that of eastern Europe as well—is that the more we move to a command economy—the more we move from people, and the market—the more certain we are to fail, and fail we will.
There are other political consequences of a single currency and further centralisation of economic decision making—which is necessary to make a single currency work. At the least, eastern European countries will not be welcomed into the Community, because a substantial transfer of resources will be necessary to keep the single currency in being. Some issues are larger than the single currency, and one is the unity of Europe in the sense of a Europe sans frontieres in which there is free movement of capital, goods and services. If imposing a single currency means that we have to deny the countries of eastern Europe any prospect of joining the Community, then the price is too high to pay. A single currency cannot be an objective in itself, except in a limited sense. It must be the servant of the political and economic system that we want, not its master.
We must take into account how the Community deals with matters which affect all its members. I have only to refer to the common agricultural policy and my hon. Friends will know what I mean. The way in which the GATT negotiations have proceeded is a disgrace. And what would happen if Britain wished to support the United Nations against another Saddam Hussein? Would we be told that, in order not to exert too much strain on the single currency, we must find savings elsewhere in our budget to accommodate extra defence spending? That is unthinkable.
How then are we to satisfy the demand for a single currency without accepting a centralised economic and political structure close to the lowest common denominator—which the current proposal would produce? The hard ecu is designed to satisfy that demand. It is a common parallel currency, not a single currency. It is subject to a central bank and run by central bankers, not politicians. It is one alternative suggested by my right hon. Friends on

the Front Bench. I for one would be glad to see the central bank run by central bankers, not politicians, regardless of the Opposition's view.
By definition, the hard ecu cannot be expansionary or inflationary. It could be a substitute for national currencies rather than an addition to them. Just as the gold standard allowed de facto monetary union, there could he convertibility into the hard ecu as and when people, businesses and, lastly, countries wanted it. That time has plainly not yet come.
The process cannot be hurried. It is not a decision that we in Parliament can take. It will take much longer to establish the conditions for a single currency than the most enthusiastic Community supporters accept. It is much better to establish the Europe that we wish to see—outward-looking, free of internal barriers, in favour of free trade and ready to accept our responsibilities in the middle east and elsewhere under the auspices of the United Nations, and then fashion a common currency that will allow us to pursue those ends.

Mr. John Battle: With the war going on in the Gulf, it may seem to people outside the House that it is a luxury to indulge in a debate on the finer points of economic and monetary union. But behind the images of war on the television screen, the economic picture is continuing to worsen. Recent high unemployment figures hardly got a look in on the news. Interest rates are still high and result in regular bankruptcies and redundancies in our constituencies. We have a declining manufacturing base and a massive balance of trade deficit. That means increasing unemployment and poverty in many of our constituencies.
The Government's policy on economic and monetary union affects that underlying agenda. At the centre of the Government's approach there seems to be a deliberate ambiguity. The current new-look Conservative leadership attempts to present a pro-EMU stand. Effectively, it is hedging on developments leading to economic and monetary union. More crucially, it is blocking moves to Community convergence in social, regional and economic policies.
The Government still insist on a hard ecu. Today we heard that it would not be subject to devaluation, but it is hard to see how that could be avoided if the Government intend that it should eventually emerge into a common currency. The Government still persist with their hard ecu fig leaf. The key problem is that the hard ecu scheme would not do what most other EMS countries want. The Government's latest proposals on the hard ecu concede the concept of an independent central bank but do not address the key issue of who will make key decisions on monetary policy. Even if the hard ecu worked, there would still be a strong possibility that an unreconstructed Bundesbank would remain firmly in charge.
The Government's proposals for beyond stage 11, published in January, make it clear that the EMS is to be entirely controlled by bankers. They propose that the shape will mirror the structure of the existing Bundesbank. They do not propose that the European monetary fund should be properly politically accountable from the beginning. We insist that it should be. The Government are struggling to remain on the fence on the independence of the European monetary fund or central bank system. In


practice the Government are voting for continued control by the Bundesbank. In reality, if the commitment to the exchange rate mechanism is respected, national monetary sovereignty will prove to be a fiction.
The Government and others speak of defending the national interest, but in financial and economic terms, national sovereignty is already a fiction. How else can we explain that, in 1989, even before we joined the ERM, Britain was forced to raise interest rates to keep in line with the Germans? It could be argued that common interest through a European central bank accountable to all member states would give us more power over monetary conditions than we have now. At present, economic policy is effectively dictated by the Bundesbank.
The Chancellor of the Exchequer stressed that the Delors proposals dealt with uncertainties which were difficult to predict and that there were no precedents in history. He even suggested that the Bretton Woods agreement could not be quoted as a precedent. However, it is worth reflecting on the Bretton Woods agreement as a precedent of a sort.
The original proposals by Lord Keynes for a world central bank to manage a world reserve asset was sabotaged by the United States on the ground that it did not want to surrender its sovereignty over monetary policy. We were left with the existing international monetary fund which plugs economies driven by market forces, despite the fact that they suffer from high interest rates, high inflation and high unemployment and massive balance of trade deficits—hardly recommended models for developing countries. That is what emerged from the Bretton Woods agreement, and it is worth remembering that the United States resisted it on the ground of sovereignty.
If national sovereignty in financial and economic affairs in a world of international financial exchanges is a fiction, it is not too much to imagine that, by the year 2020, local and regional centres of power will be increasingly connected to international centres. That may formulate the axis of power. The role of national parliaments may diminish within the next 50 or 100 years. We should not fear that but face up to it and what it could mean in terms of democratic and internationalist politics.
Another overworked fiction is the mechanism of the market. Today the Prime Minister said that the hard ecu would be driven by the market and not imposed on anyone. He spoke as if market forces had a life of their own, entirely autonomous of human influence and decision. But the Chancellor said that he would work with the market. He implied that the hard ecu would not be so subject to the forces of the market as the Prime Minister suggested. However, there is a dominating fiction that the iron laws of the market exist in a determinist sense, which suggests that we must be committed to an arithmetical equation. We are dictated to by the vagaries of market forces.
My hon. Friend the Member for Great Grimsby (Mr. Mitchell) drew a parallel with the weather. Perhaps it has not occurred to him that clouds can be seeded and climate can be influenced and changed. We do not need to be subject to these determinist laws. In assenting to that, the

Government reject any positive role in the plan for an active transition to a single market in economic, social and monetary policy.
The new pro-EMU stance of the Prime Minister and the Chancellor is cast and set in the language of free market forces, with the hard ecu as the only iron in the fire. The Government's approach is deliberately to neglect, if not be downright hostile to, the wider agenda set by the Delors report. In particular, they neglect the need for substantial social and economic convergence between member states before monetary union can take place.
Some Conservative Members have suggested, as I think the hon. Member for Ludlow (Mr. Gill) did, that convergence is geographically impossible and unnatural. But surely he and others would accept that, at the very minimum, it is important to prevent increasingly widening divergences that would damage all Community members. Convergences should be not only in terms of inflation, as even the Chancellor accepts, but in terms of ability to gain sustained, balanced growth and development for all in the Community.
The Cecchini report of economic experts on the benefits of the single market, drawn up in 1988, states:
If the new rewards are not shared fairly, the EC home market will rest on a brittle skein of regional and social tensions … Undoubtedly … assistance will be needed for the Community's declining regions and labour affected by industrial restructuring.
It continues:
there is a need to examine the sector by sector impact of removing non-tariff barriers and to envisage accompanying social policy measures across a range of fields: vocational training and mobility; labour market flexibility; and the more intensive use of the Community's social and regional funds. The extent to which the 1992 programme can attract economic and social cohesion around it will be the key to its chances of success.
Most recently, some economists have drawn attention to the fact that technology changes in the 1990s could have as devastating effect on employment in the service sectors of Community countries as de-industrialisation had on manufacturing in the late 1970s and 1980s. But at least and at last, employment needs, inequality and poverty issues are getting on to the agenda. Some 14 per cent. of the Community's population lives in poverty which, as we all know, is unevenly distributed throughout the Community, as German reunification graphically demonstrates at present.
There has already been some welcome response to poverty and social needs in the restructuring of funds, such as the European regional development fund. But the real trends of divergent development between European towns and cities continues, increases and needs to be tackled. References to free flow of capital must be matched by references to the movement of labour within the European Community. There is a real danger that all that will happen in 1992 is that the divergent trend between skilled and unskilled labour will be reinforced.
We must face up to the mobility implications of that divergence because professional and skilled people will freely move in and out of major European cities and benefit them, but those northern cities that are in decline will lose their populations as unskilled and semi-skilled labour heads off in search of work. The result will be a growing polarisation between rich and poor within the Community. Unless that issue is addressed, moving in the direction of economic and monetary union alone will be of no benefit.

Mr. Ian Taylor: This is an important debate, and one of the problems is that we are talking about economic and monetary union rather than trying to separate them. There is a distinction between the two; it is possible to have monetary union, with a large degree of discretion and flexibility for Governments in economic and fiscal matters.
Economic union is already being advanced in the European Community, with the support of the British Government, through the single market programme. I for one welcome the Commission's announcement, in its report issued earlier this month, that it is aware that some countries are not applying the single market programme with the same efficiency as this Government and will start proceedings against those Governments. The House will welcome that; it is a good, high priority in the Commission's plans for this year. Economic union will flow from the completion of the single market programme, which does not need to contain fiscal harmonisation or managing, on a statutory basis, budgetary deficits between member countries. Therefore, I do not believe that many hon. Members would oppose economic union, which is certainly very much part of the Government's clear policy.
Monetary union has been more controversial. However, there is now a series of basic agreements on policy between most Governments in the Community that create a favourable atmosphere for discussions in the inter governmental conference. For example, there is general agreement on the value of stable monetary supply, stable prices, low inflation and, crucially, an understanding—unfortunately not shared by some Opposition Members—that there is no value in policies resulting in devaluation. The depreciation of the currency is not, in itself, a merit. The important point is that we in this country have so often had surreptitious impoverishment because we have allowed reduction in the value of our currency without consideration of the fundamental issue of how to improve the competitiveness of our industrial performance. The need to avoid devaluation is understood throughout the Community.
The ERM has been remarkably successful, and I welcome our entry of it. All of us would like interest rates to fall in this country. Those who approach that aim by saying that we must challenge the central rate of sterling in the ERM at DM2·95 do a great disservice to the efforts to reduce interest rates. As long as there is uncertainty about the British Government's determination to hold the DM2·95 level, there will need to be a premium on sterling in terms of interest rates. The greater the confidence that we are determined at all costs and at all times to maintain the DM2·95 central rate, the greater the confidence of people investing in sterling and thus a reduced need to have a high interest rate premium against the deutschmark. I urge those who agree with me that we want lower interest rates to cease to question the DM2·95 level; that would be a great service.
I think that the sooner we move to the 2·25 per cent. margin on either side of the central rate, the sooner we shall increase the likelihood that the market genuinely believes that the British Government are determined to crack inflation—not to resort to the antiquated device of depreciating currency. That would increase certainty,

increase investors' confidence, and lead to a reduction in interest rates through a reduction in the premium necessary over the deutschmark.
There are other factors that assist in that, such as the technical rule that any movement of adjustment in the ERM, particularly when there is a smaller central rate margin, should not be done outside the existing rate. At present, there is a 6 per cent. band on either side and we should never move out of that range when resetting the central level of the 2·25 per cent. band. The strength of ERM could develop further by moving progressively downward in the band on either side of the central rate; 1·5 per cent. would be achievable. That would be an extremely beneficial move, and in this country's interests, in terms of reducing our interest rate premium.
The consensus that has emerged on various economic policies has also given rise to the need to bring convergence in the Community between the performance of the various economies. That is clearly an objective of all those involved in the discussions. The question is how to do it. That is where the hard ecu shows the role it can play. Setting a non-inflationary standard through the mechanism of the European monetary fund will provide the possibility of ensuring that good money chases out bad.
Therefore, any country pursuing profligate policies that lead to a tendency of its own currency to depreciate within the ERM bands will find that its citizens and businesses will opt for the harder currency—the ecu. That will be a disincentive to that Government, who will have to put their house in order. Therefore, over a period—one that is not easy to define but will be shorter than expected—there will be a convergence on a lower inflation rate throughout the Community. That will give the right basis for stable money and therefore monetary union.
It is important to understand what the Government have proposed. The European monetary fund will have teeth. It can force countries to make good the loss in value in their depreciating currency by purchasing ha rd currency. That is an important role for the EMF, and one that is deliberately anti-inflationary. Secondly, the EMF cannot increase total monetary supply within the Community because it can only issue the hard ecu against reserves from existing currencies. Therefore, the Germans' worry that the EMF and the hard ecu would increase inflation is unfounded, and I hope that we can get that argument across to the Bundesbank. The worry that it might make Bundesbank management of monetary supply more difficult is also unfounded, and I hope that our arguments on that will prevail.
The other interesting point about the proposals—there is a good deal of agreement with the Commission on this—is that there will be no bail-out of deficits built into the arrangements, as countries will not be able to print money to finance deficits. This is important, because if one has a common monetary policy throughout the Community—that will be achieved as the European monetary fund sets the conditions for monetary policy—each country will have some budgetary flexibility if it is creditworthy, and it will be creditworthy only if it is able to show that it has a sensible anti-inflationary policy.
Furthermore, such a country would be more exposed to criticism and assessment by lenders. Lenders will not lend to a country in whose policies they do not have confidence. However, if the policies are sound, lenders will be prepared to lend to that country, and that will give the Government substantial fiscal flexibility and sovereignty. As has been


said, Germany is running a budgetary deficit of 5 per cent. of GDP. That is a remarkable increase, but people still believe that the German Government are pursuing anti-inflationary policies and are prepared to lend to Germany, so there has not been a significant change in German tax or interest rates.
The important point is that we have the European monetary fund as an institution to set monetary discipline. I do not see a great distinction between what the Government are proposing and what many of our friends on the continent wish. The European monetary fund could be the Euro Fed of the future. Our proposals could satisfy our friends because the common currency could lead to the single currency. In my view, the hard ecu is likely to be the safest and fastest route to the single currency, and I hope that our proposals will get more and more consent as the IGC continues.

Mr. Peter L. Pike: I shall pick up two of the points made by the hon. Member for Esher (Mr. Taylor) on which I came to a different conclusion. I have not yet heard an industrialist or anyone on the commercial sector say that the Government were right to enter the ERM at the rate of DM2·95 to the pound. I do not accept the view of those responsible about the need to keep interest rates high so as to maintain that exchange rate. They are kept high because the Government got it wrong in the first place, and now do not have the flexibility, which they would like, to reduce interest rates. I have met many industrialists, most of whom told me that the Government were wrong even before I asked. Going in at the wrong rate has put our manufacturing industries at a disadvantage and made imports cheaper. That gives the Government another problem to cope with in their efforts to get the economy right.
We fully accept the need to get inflation down and we recognise the importance of that to the economy. However, we believe that the Government fail to recognise the contribution to inflation of interest rates. The Government say that the guilty party in this is wage rates, but interest rates are a bigger contributing factor.
I support the line taken so ably by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith). I do so for two reasons. First, I am a regional Member of Parliament representing a constituency in the north-west. Secondly, I represent a constituency heavily involved in manufacturing industry. If we are to maintain our manufacturing industry, we should take the line set out by my right hon. and learned Friend, because that is the best way to protect manufacturing industry and secure job stability.
Because we are in the ERM and fast approaching 1992, with all that that implies, a single currency and European monetary union are inevitable. However, we should not be going along that line with a blank cheque approach, agreeing to every condition. We have to get everything right. When the Government went into the ERM, they did so in a panic, and fixed the rate wrongly. I should be far happier about my right hon. and learned Friend the Member for Monklands, East and a Labour team

negotiating those terms and conditions than I am about Conservative Ministers doing so, because we would look after the interests of Britain and the regions.
Last night, my right hon. and learned Friend and I were at a meeting with the general secretary of the General, Municipal, Boilermakers and Allied Trades Union, of which we are both members. He told us that the membership, at grass roots level, was pushing the union to take a far more positive approach to EMU and European matters. That change among the membership is because people working in industry believe that it is the best way to safeguard their future. Anyone who argues that we should not be moving in that direction has to recognise that we have lost so many jobs and that manufacturing industry has deteriorated so much in the past few years that we have to do something positive if we are to prevent a further decline.
My constituency is heavily involved in manufacturing, as is the north-west as a whole. However, despite what the Secretary of State for Trade and Industry said at Question Time yesterday, investment in manufacturing has fallen by more than 30 per cent. in real terms since 1979, output is down by more than 30 per cent. and jobs in manufacturing are down 38 per cent. in the north west. Conservative Members like to call that an economic miracle, but it spells economic disaster for Burnley and the north-west.
My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said that manufacturing is the creator of wealth, and we want wealth to be created because we want to be able to get enough income for the future Labour Government to fund a more positive approach. We certainly want to encourage that. We believe that what is needed is a much more positive attitude to industry. It is also necessary that there be a much more positive attitude to the regions. The Conservative Government have used additionality against the regions. Only the British Government have operated it in that way, and it is something of which they should be absolutely ashamed.
Many industrialists have put very forcefully to me the point that the ability to trade in a single currency, without the need to be bothered about bankers' commission and so on, would make business considerably easier. We want to be able to compete in Europe on equal terms.
The number of jobs being lost at present may not be so great as the number lost in the early 1980s, but higher productivity means that those losses have a far greater impact in relative terms. That is a matter for concern.

Mr. Ian McCartney: Does my hon. Friend agree that it is not just a loss of manufacturing jobs that we are seeing? In the north-west, substantial numbers of jobs are being lost with the closure of firms that were set up in the 1980s for the very purpose of replacing lost jobs. In other words, the so-called new employment prospects in the north-west are also being eroded.

Mr. Pike: My hon. Friend is absolutely right. The north-west has changed. Traditional industries have gone, and the new industries are suffering difficulties. Many of these are high-technology firms. It is sad that jobs are being lost there too.
We must enter the negotiations positively, although I realise that we may well encounter difficulties along the route. Perhaps, at some stages, there will emerge certain things that we are not prepared to accept. However—as you, Mr. Deputy Speaker, a prominent union member,


will realise—it is absolutely crucial to have a positive approach if one is to achieve a positive result. If our approach to a single currency and EMU is right, we should get the type of agreement that we want. We should be kidding ourselves if we believed that no other country in Europe would at any stage find some of the proposals unacceptable. As certain hon. Members have said, there will be times when Britain is not the odd man out.
The Opposition envisage Europe extending to include EFTA nations and some eastern European countries. If Europe is to play a positive role in the world—for example, in respect of the environment and the third world—we shall have to do everything we can to ensure that its economy, including the economy of this country, is as strong as possible. I believe that movement in the direction I have indicated would achieve that objective.

Mr. William Cash: The Gulf war that is going on at the moment has demonstrated a number of serious weaknesses in the way in which the European Community has been developing. In the context of this debate, it is important to remember that the system being proposed would effectively—through the interlocking of economic, monetary and eventually, I think, fiscal policy—have a dramatic effect on our capacity in future years to conduct a foreign policy such as we are engaged in now or a defence policy that would enable us to deal with a Saddam Hussein of the future.
I make this point with reference to the explanatory memorandum relating to the draft treaty on economic monetary union. I think that 1 am the only hon. Member—apart, perhaps, from Ministers—to have a copy. I do not want to go through it in detail, but I do want to quote these words:
The joint exercise of new powers in areas in which reach to the very heart of sovereignty, such as currency matters and foreign policy, will require the existing institutional framework to be adapted to a higher degree of community integration.
It could be said by some, of course, that this is nothing more than a Commission document, which should not be taken too seriously. If one were to take a fairly relaxed view of these matters, one might adopt that attitude. On the other hand, the evidence of the engrenage that has taken place within the Community over the past 15 years indicates that the real muscle—the forward drive for the progressive realisation of economic and monetary union—has lain very much with the Commission. This is what some people believe to be progress.
It is therefore relevant, in the context of the current dramatic events in the middle east, to consider very briefly what would happen if we were faced with this interlocking monetary and economic system in relation to the proposal for a central bank, in which case we should have, effectively, unelected bankers running these policies. That would reduce our ability to determine the economic and social priorities, including defence. We should have to ask ourselves what impact that would have on our ability to respond to a threat similar to that posed by the activities of Saddam Hussein and Iraq.
Bearing in mind the fact that economic and monetary union, together with foreign policy, lies at the heart of the sovereignty question, I should like to mention that, at the meeting of Foreign Ministers on 4 January, Mr. Roland Dumas is reported by The Economist as having snapped:

If the European Community had majority voting on foreign policy you would be outvoted.
One can therefore understand the relationship between political union and economic and monetary union. As has been said during the course of this debate, one cannot really separate them. For practical purposes, once one has moved to economic and monetary union one is on the threshold of, if not right into, political union.
We saw what happened yesterday in the European Parliament. A six-hour debate on the Gulf crisis broke up in confusion. Newspapers reported Mr. Jacques Delors as having put an imaginary pistol to his head and walked out in disgust. I do not take any pleasure in this, nor do I take any satisfaction in saying, as many hon. Members have said from time to time, "I thought that this might happen."
The reality is that it is a matter of immense importance for the future of this country that we should not make any mistakes in this respect. If, for example, the European Community, had a common defence policy—a proper defence policy along the lines of that of the United States—its current average expenditure of 3·1 per cent. of gross domestic product would have to be just about doubled. Incidentally, in the United Kingdom at the moment the figure is about 4 per cent. The extra resources would have to be produced via taxation, which would inevitably have to be drawn from the member states.
To achieve defence at the level of that of a country of equivalent standing, such as the United States, taxation would have to be raised to that extent through the processes of economic and monetary union and fiscal policy, and I just do not believe that the individual member states would wear that. Individual contributions for defence by way of the percentage of gross domestic product, are way below the British contribution. That is a point that we must bear in mind.
I repeat that there is nothing anti-European about my attitude to the various questions. I was the founding member of Westminster for Europe and I want the EC to work, but I do not want to see the whole thing disintegrate as a result of embarking on policies which are essentially impossible and unreal and which, in the context to which 1 have just referred, are potentially dangerous. I have no doubt that the British people, looking at the state of affairs in the Gulf and the almost non-existent contribution that has been made by other member states, would be deeply concerned if they thought that the proposals for EMU could or would have an impact on our defence policies in the Gulf or elsewhere in the future.
If there were an increase in the amount of money spent on defence in percentage terms, it follows that there would be a corresponding decrease in the amount of money available for other areas of public expenditure. That in turn would cause grave difficulties which would probably have something to do with the arguments that were raging in the European Parliament yesterday. There are serious questions about the economic, social, defence and public expenditure policies that would be pursued under the regime that has been postulated by the Commission in its draft treaty. The same could be said of the proposals for a single institutional structure, or political union, which have also come from the Commission.
Our proposals entitled "Possible treaty provisions and statute for a European monetary fund" were published in January 1991 and have been presented to the House. I put my observations in the form of questions, a number of which arise. For example, article II says:


The overriding objective of the European Monetary Fund shall be to promote and maintain price stability in the Community as part of the progressive realisation of Economic and Monetary Union.
It goes on to say:
Without prejudice to the object of price stability"—
which many economists would say is extremely difficult to define, and is not well defined in any of the Commission documents, but is generally taken to mean that inflation will be kept as low as possible—
the Fund shall support the other economic policy objectives of the Community.
The question is, what are the Community's economic policy objectives? Is there not an invitation, as my hon. Friend the Member for Esher (Mr. Taylor) suggested, to massage the present arrangements proposed under the document into what he would like, which is the Euro Fed arrangement.
I hope that my right hon. Friend the Chancellor of the Exchequer with whom I have had the pleasure of discussing—

Mr. Deputy Speaker (Mr. Harold Walker): Order. Mr. John Butterfill.

Mr. John Butterfill: As chairman of the Conservative Group for Europe, I believe that it will come as no surprise to hon. Members that I hope that we will eventually evolve much closer unions within Europe, both politically and economically. Evolve is the important word. In recent times, some of our European partners have been trying to press things much farther and faster than most of their populations are prepared to tolerate or economic conditions within the Community can sustain.
I would go even further than my hon. Friend the Member for Esher (Mr. Taylor) and say that, first, we must achieve economic union, as we are doing through the agency of the single market, but before we proceed to monetary union, we must have much closer political union, because the two things are inseparable. Unless we can achieve political agreement about the Community's general objectives, it will be impossible to achieve full monetary union. Therefore, to a great extent, we have been putting the cart before the horse; or, more importantly, the Delors committee has been putting the cart before the horse.
That is not altogether surprising because much of the motivation behind the Delors proposals was to achieve the political objective of pushing the Community's political union faster than it had gone hitherto. There is much to support that. Many leading statesmen within the Community accuse us of having no vision, but I do not believe that. I have just as much vision as they have, but I hope that I have a good deal more pragmatism.
Late last year, with some other hon. Members, I attended the interparliamentary convention in Rome and it became clear to me that many of those present wanted things to go much faster in all those areas than we had previously understood to be the case. Many brave words were spoken, particularly about political union. It is rather sad that recent events have shown that when it comes to the political crunch, for example with regard to the Gulf, those brave words have not been matched by brave deeds.
I take no pleasure in that, but it is true, so we must take a much more measured approach in the way that we proceed on economic and, later, monetary union.
Having said that, are we doing the right thing? Have the Government taken the right approach? I believe that they have. I believe that, in joining the exchange rate mechanism at the central rate of DM2·95, they have got it right. I agree with my hon. Friend the Member for Esher that those who are continuing to speculate that that rate will have to come down in order to give some mythical assistance to British industry are doing nothing but delay the eventual reduction of interest rates which will occur as inflation reduces within the British economy, as I am confident will happen later this year.
We should always speak out against the siren voices that we have heard from the Opposition Benches saying that we must devalue our currency in order to assist our manufacturing industry. Nothing could be further from the truth. We have done that consistently ever since the last war, and it has got us nowhere. It is short-termism, and it is a road to ruin.
To see the proof of that one has only to look at the situation in those countries that have not followed that route. Exporters in Japan and West Germany have concentrated on quality, delivery, reliability and service to their customers and they have sold consistently better than we have despite the fact that their currencies have been appreciating in value. It is about time that Opposition Members learned that important lesson. It is sad that the hon. Member for Burnley (Mr. Pike), who is just leaving the Chamber, has not yet taken that on board.
Should we go along some of the routes suggested in the Delors report? For example, should we have independent central banks within the Community? Greater independence for central banks has a good deal to commend it. It would impose disciplines upon the management of the economy which are desirable and in accordance with Conservative thinking. It would prevent us from running the horrific budget deficits that we have seen in the past. It is perhaps no coincidence that the countries which have had to devalue within the ERM are those which run the highest budget deficits, one example being Italy. Therefore, there should be some rigour in the management of the economy and of detachment from short-term political considerations.
The market approach is the way forward. If we were to go down the line of redistribution within the economy and straight into a single currency, we would be forced back into the old systems of regional support which have served all of Europe, but especially this country, so badly. Previous policies of regional aid in this country were harmful to the development of the regions, because they created a dependency culture and the feeling that someone else would bail them out.
It was not until this Government came along and encouraged the regions to stand on their own feet, by harnessing the innate creativeness of the inhabitants with inward investment, which attracted foreign capital and capital from other parts of the country, that there was the dynamism which we now see in the Scottish and Welsh economies and the resurgence of the economy in the north. That is the way forward for the whole of Europe. It is no use creating dependency cultures all over Europe or talking about monetary union until we have achieved much greater economic convergence of all the regions within Europe.
The proposal of a hard ecu is beneficial and should be given greater consideration by our European partners. When I was in Germany in the latter part of last year, I too met Dr. von Wartenberg, the director general of the Federation of German Industry, who confirmed that it was an interesting proposal. He wished to change some of the original British proposals but felt that the hard ecu could work for the benefit of the whole of Europe. Therefore, we should proceed to develop with our European partners the proposals for a European monetary fund. It would impose market disciplines and counteract the centralist and interventionist proposals of the Commission which would be harmful.
Monetary union depends upon agreement among the members of the Community about where we all want to go and how we want to get there. It is no use putting the cart before the horse, as the Community has done to date. If we push it too fast, it will all end in tears. If we try to go down the route that we are being encouraged to go down by the Commission, we will create a structure which will be inherently unstable, which will lead to disaster for the less developed countries of the Community and which will bring the whole Community proposals into disrepute. It is clear that we do not yet have that agreement. Therefore, we must adopt a step-by-step approach.

Mr. Nigel Forman: I welcome the debate as a chance for my hon. Friends on the Back Benches to contribute to the thinking of Ministers on economic and monetary union before my right hon. Friend the Chancellor goes to the IGC on 28 January. In his excellent opening speech, my right hon. Friend admirably met two of the requirements of the right hon. and learned Member for Monklands, East (Mr. Smith) who suggested that the approach to these matters should be realistic and constructive.
That was a fair description of the approach of my right hon. Friend. As the House knows, he is advocating an evolutionary and practical approach to the next stages of economic and monetary union. Indeed, he need not have apologised for that, because those of us who have looked into the foundations of the European idea since the last war were aware of the famous phrase of Jean Monnet when he described his approach to these matters as "une politique de petits pas", a policy of small steps. There is no doubt that the incrementalism implied there is inherent in the Community method.
I understand very well why the previous Chancellor, now the Prime Minister, said that Governments could not accept the imposition of a single European currency since that would imply a political decision to do so taken against the wishes of at least one important member Government. Even though technically it might be possible for that to happen, it would be a disaster, and I cannot believe that in practice our Community partners, especially Germany which also has reservations about the Delors approach, would allow it since it would disrupt the cohesion of the Community at a time when it could not be more important for all Twelve to be united.
Therefore, I wish the Chancellor and his colleagues well in what is likely to be a long haul in terms of discussion and negotiation. Nevertheless, this is perhaps the right

occasion to offer a few points of important detail arising from the text of the Government's proposals. I intend to devote my brief remarks to that end.
Taking first the Government's draft treaty articles, it is right that the objectives of the proposed European monetary fund should he the maintenance of price stability and consistency with free markets, as set out in article II. It is also right that the hard ecu should not be susceptible to devaluation in any circumstances since that would make it at least as attractive as the deutschmark and could offer an ingenious way of limiting, and eventually reducing, deutschmark dominance within the Community, without recourse to French-inspired supranationalism of the kind advocated by Mr. Delors.
When it comes to the exercise of the powers and duties of the European monetary fund, I would infinitely prefer alternative 1 in the Treasury paper to alternative 2 in draft article V. That is the only way to guarantee independence for the fund, and it should be done right from the beginning. It would be advisable for the following brief reasons. First, it is advisable to make the proposed new institution and its monetary policy as credible as possible in the eyes of markets. Independence would achieve that. That is the most important reason.
Secondly, it is advisable to make the new institution compatible with the established leading model—the Bundesbank in Germany—and thus attract vital German support in the negotiations. Thirdly, it is important to give the idea the best possible chance of meeting its two principal objectives—those laid down in article II. I realise that would entail a change from our existing approach to these matters.
Indeed, it would probably be sensible for us to legislate at about the same time to put the Bank of England on a new basis of statutory accountability to the House. I sought to pursue that point with the right hon. and learned Member for Monklands, East. I would welcome such a change which would make our arrangements institutionally compatible with the arrangements that we can expect to emerge within the Community. It would not erode the sovereignty of the House in monetary matters—quite the reverse, since under the existing arrangements, dating back at least to the Bank of England Act 1946, not even the Cabinet, let alone the House, has effective control over national monetary policy.
It would impose on the Bank of England a duty of periodic accountability to the House for the conduct of monetary policy, at least for the day-to-day administration of that policy, by obliging the bank to give perhaps a quarterly retrospective account of its stewardship. As I sought to say in my intervention, it would be for the European Parliament to provide the necessary statutory accountability for the proposed European monetary fund in the manner suggested in article IX of the draft text. This House should have a more established role in monitoring the administration of the Bank of England.
Furthermore, I believe that the Government are right to suggest in article VII in the draft text that, in the event of infringement by a member state or a national bank, it should be for the executive board of the European monetary fund to bring the matter before the European Court of Justice. That is a wise principle—that independent monetary arrangements for Europe should be reviewed, and disciplined if necessary, by the already functioning independent judicial arrangements of the


European Court of Justice. I would not expect such sanctions to be used very often, but it is important that they should be available.
The combination of legal accountability to the European Court of Justice and political accountability to the European Parliament is the right one for the European monetary fund. It is then up to this House rather than the Government of the day to provide a statutory framework of accountability for a much more independent Bank of England.
I believe that the House should welcome these proposals rather than take fright at them. We should start from a recognition that the days of real monetary autonomy for any single nation state or national parliament are long gone. We should therefore move forward pragmatically in discussions with our partners on the basis of these proposals, making it clear all the time that our ideas could evolve towards the establishment of a single European currency by mutual consent and in response to market forces.
If we do this we could find not only that we win the argument at the intergovernmental conference, but also that our partners will accept the idea of having a British president of the governing board of the European monetary fund which, for gastronomic and other reasons, should be located in Paris.

Mr. Alistair Burt: My starting points for my short contribution to today's debate are two quotations. The first is from an address by Leon Brittan last year to the TSB and published under the title "European Monetary Union—What Money for Europe?"
He said:
there is nothing mystical about national currencies—or international ones for that matter. I am in favour of those arrangements which make our economy work better, and so provide more prosperity and more jobs; and against any changes which do not make economic sense. If, therefore, Britain is better off with its own currency not all the tea in China or even all the directives in Brussels would convince me that it is right to give up that currency.
That seemed to me a pretty sensible base from which to begin one's exploration of this issue. Money is a tool in the service of the economy and one which evolves over time. No one would argue with that.
The second quotation is from my right hon. and learned Friend the Member for Blaby (Mr. Lawson), speaking in the House in a debate on the exchange rate mechanism on 23 October last year, when he said that he entirely agreed with his right hon. Friend the then Chancellor of the Exchequer that
there is a world of difference between EMS, which is an aspect of economic management, and EMU, which is essentially political."—[Official Report, 23 October 1990; Vol. 178, c. 216.]
It is the political aspect of European monetary union that I would like to explore a little. This has been a wide-ranging debate which has enabled us to cover these matters well. I would like to add something on the political aspect, particularly in relation to the issues of sovereignty and the co-operation of European states.
In early November of last year, I was given an opportunity to visit France by the French Government, whom I thank most warmly. I sought to explore the then

very strong-running controversy of sovereignty, which was thought by many, both then and now, to be at the heart of the issue of European monetary union. Two questions were uppermost in my mind.
The first was why, bearing in mind just how strong were our feelings on sovereignty, the French were not similarly concerned. Whatever differences we may have, there is no doubt that as a nation state France is as proud and patriotic as we are. Why were the French not up in arms about the possible loss of sovereignty in relation to their currency?
The broad answer that I picked up to this question was that the French consider this argument to be old hat. About 10 years or so ago, it had been much explored, but a consensus had emerged that sovereignty was enhanced through greater involvement in Europe and that European decisions would on the whole be with, rather than against, French interests. They expected this to be the case because they expected to have influence at both political and diplomatic levels. There are lessons there for those who neither expected nor tried to have such influence. Subsequent experience has shown the French that this decision has been broadly correct and they were therefore generally content to move towards a single currency.
At this stage I put in two caveats. It was the view of one leading French journalist that the French were perhaps too unquestioning about the whole business. He thought that sovereignty was an important issue and, while he did not necessarily disagree with the broad consensus in France, he did not believe that either politicians or public were asking the right questions.
The second caveat is that the French system invests rather more executive power in its President than in its Parliament; but, provided that the decision-making system of the European Community allowed for the president to exercise such Executive powers at the highest level, it was felt that the system would be workable. Such veto power is indicative of their desire, as on the Government Benches here, to avoid a completely federal system and to retain the power of the the nation state in some way.
The second question that I wanted to explore, particularly with politicians, was an economic one. Was not the major thrust of European Community economic policy, the common agricultural policy excepted since it is under reform, far from being socialism in disguise, innately market-oriented? Did not the ERM, and future EMU, strengthen this, thus locking political parties of both left and right into a broadly free market economy, limiting shifts in both politics and economics to slightly left and slightly right of centre?
In putting this view to politicians of the right, I was seeking to see whether they shared the reservation sometimes expressed on these Benches that Europe was inevitably moving towards a corporate socialist future. I do not hold such a view, and nor do they. They can see no reason why Conservative politicians should not welcome the growing convergence of European economic policy, because, with the single European market well established, it is inevitable that the economic policy of the Europe of the future will be so market-oriented that socialism as we had come to know it in our country will be effectively impossible to implement.
Putting the question slightly differently to the socialist representative that I met, I was given a slightly different answer. He also recognised that the socialism that we had come to know and be amused by in this country was not


truly possible in the Europe of the future, but he certainly believed that socialist social aspirations could be achieved. He was quite prepared to work within the economic boundaries being set, and of course he had a rueful experience upon which to draw.
This reflects a point made by my hon. Friend the Member for Carshalton and Wallington (Mr. Forman) in talking about the relative autonomy of any country these days. The experience of socialist France in the early 1980s, when it tried a sort of "go it alone" economic policy, proved to be a disaster. France, it appeared, was already locked into the economic system of others. He recognised, therefore, that his sovereignty and freedom of action, like ours, was already limited. That is a lesson to which I will return in a few moments. From these discussions I drew two particular conclusions.
First, as well as economic convergence in Europe being necessary over the coming years, the French had a feeling that there was already a growing social and political convergence throughout Europe. Putting it in bold terms—I welcome both developments—they saw that we were heading towards the firm establishment of a social market economy throughout the European Community, and a broadly social democratic political philosophy, in which Governments of either centre-right or centre-left would be perfectly comfortable, but those of more extreme views on either side less comfortable, and indeed far less likely to be elected.
Secondly, I believe that the recent history of Europe has left its mark on continental Europe and those islands in quite a different way, and this is partly responsible for our discomfort with moves towards political and economic unity, and their different approach to sovereignty. The experience of the second world war in continental Europe and these islands was different in one major and fundamental respect. Almost every other continental European country suffered the experience of occupation. I do not believe that we in this country have any real conception of what a miserable existence that must be. However, one has only to spend a moment on the continent to understand just how significant it was in their lives and their memories. Their whole political and cultural thrust has been to ensure that such a thing never happens again.
Extreme nationalism—not pride in one's nation, as we know it—was at the heart of their agony and distress. Working to eliminate the bad things of nationalism has therefore been of prime importance—hence the drive towards a unity which may not be fully fleshed out yet but is immensely powerful in its influence. The British resistance to this over the years seems to have had behind it a hesitation, that if the balloon went up again in continental Europe and there was some disaster similar to that of pre-war Europe, there would for us be a way out. We would not have burned our bridges so as to tie us into a disaster. Continental Europe says that all activities are designed to ensure that the balloon never goes up in the first place, and that our influence and determination is needed to ensure that that does not happen. By increasing our level of involvement and commitment, we can ensure that what we fear, and what we may secretly guard against, does not happen.
In drawing all these strands together, I shall leave three final points with the House. First, it is the considered opinion of many people that, whatever we wish to do in this country, continental Europe will move towards a

single currency. If this country were not involved in that process, it would be a disaster. We spent too long on the outside of the European Community to underestimate the effects of isolation. We have never truly caught up, and although our economic and industrial performance during the past decade shows many good points, there are enough flaws in our performance to make our isolation rather worrying. Without the discipline which adherence to external forces demands, I am not at all certain that the United Kingdom economy will bite the bullet sufficiently on its own to complete its restructuring to give us the sort of prosperous future for which we are all looking.
Secondly—the hon. Member for Wycombe (Mr. Whitney) mentioned the United States—we must recall that the United States and other countries now regard us in relation to our position in Europe and how we feel about it. If we are not fully involved in Europe, their feeling for us will gradually diminish. Thirdly, once we have made the commitment to the future, paradoxically speed is far less important. There is a whole group of questions about monetary union which need to be carefully explored. Too rapid a timetable has many disadvantages, but the rapid timetable that is being pursued by others is nothing more than an attempt to get us involved. Once we make that commitment to a single currency by making it plain that we think that the hard ecu will lead to a single currency, the pressure of commitment will be off and we shall have more time to explore the issues that we need to explore.

Sir Anthony Meyer: I intervene in this debate to try to correct any possible impression that there is a consensus across both sides of the House which is opposed to progress towards European monetary union. However, after the outstanding speeches by my hon. Friends the Members for Carshalton and Wallington (Mr. Forman) and for Bury, North (Mr. Burt), I do not think that it is necessary to try to create that impression.
It is true that there is some sort of consensus extending to both sides of the House, but it extends primarily to those hon. Members who still believe that there is something rather splendid about isolation. Those hon. Members hold the view that we should not move towards economic and monetary union. However, there is a much broader consensus, although perhaps a little less vocal, to the effect that it is to the long-term benefit of this country to be fully involved in steady progress towards European economic and monetary union, even though there is room for plenty of debate as to how fast we go and what route we choose.
In some ways it seems rather quixotic to be arguing now for renewed progress towards a single European currency. It is part of the process of European integration, at a time when the public perception is that the European Community has shown itself to be pitifully inadequate and irrelevant to the gravest problem facing the world today. Furthermore, it is the perception that the first step towards monetary union has tied the Government's hands, just when the onset of recession seems to offer a siren call for maximum flexibility in exchange rate and interest rate policy.
On top of all that, further progress towards economic and monetary union ties us closer to the European Community at the moment when its trading policies,


especially in agricultural products, are damaging to world trade and have already brought an open conflict with the United States, at whose side, when the chips are down—as they are in the Gulf—we have to find our place. The arguments for hanging back from the process of European integration—monetary, economic and political—and for blocking progress if we can, have never looked more seductive. It is important to counter those arguments, and I shall try to do so briefly.
I do not like arguments ad hominem, but I feel bound to point out that those in this House, and still more those in the press, who are now telling us with such glee that Europe has let us down, and that we should turn our back on the EC and concentrate on our special relationship with the United States, are the very people who have been scornful of the European Community all along. Those people, particularly in the tabloid press, and very particularly in the Daily Express, The Sun and the Daily Star—whose mission in life it is to promote international misunderstanding—are busy spreading stories of, for example, French unreliability, despite the fact that France has committed substantial fighting forces in the Gulf, and has provided staunch, if occasionally idiosyncratic diplomatic support. I may be speaking for others besides myself when I say that it was the much-criticised final French attempt to find a compromise which finally convinced me that war with Saddam Hussein was inevitable and just.
Even if those criticisms were justified, however—and it hardly becomes us to criticise the Germans for not sending troops abroad when we imposed the condition that they should not do so—just what would we achieve if we went along with the argument that we can now let the European Community stew and concentrate instead on our bonds with the United States, and that as a first step we should resist any further advance towards European monetary union, try to block it if we can, and if we cannot, opt out of it to the extent that our commitment to the exchange rate mechanism permits us to do so?
That seems an incredibly dangerous line of argument to me. It is to ignore all the lessons of the past 30 years, and to be influenced solely by the lessons of the past 10 days. None of us can make even an intelligent guess as to what patterns of alliances and commitments are likely to survive the Gulf war but to assume that our ties and shared interests with the United States, Egypt, Syria and Saudi Arabia are likely to prove more stable and more durable than our ties with France, Germany and Italy seems to me to be the very height of imprudence.
No—for all its horrors and its drama, the Gulf war is only indirectly relevant to Britain's long-term interests. However long the conflict, at the end of it Britain's destiny lies in Europe. If Europe has failed to show the unity of purpose which was so sorely needed, that is not a reason to opt out—we cannot opt out—but a reason to redouble our efforts to elicit that unity of purpose in the economic, monetary, and political fields.
Only the charismatic personality of my right hon. Friend the Member for Finchley (Mrs. Thatcher) could have persuaded anyone of the absurd proposition that a single European market could flourish for long without a single currency. The present Prime Minister is entirely right to argue that the way to achieve that single currency

is not by diktat from Brussels, but by allowing free choice and market forces to bring it into being, as they assuredly will.
Nor will anyone be so foolish as to argue that a single currency is the easy way to get back to growth without inflation. We have, as my right hon. Friend the Member for Blaby (Mr. Lawson) pointed out some time ago, made this part of our task far more difficult by joining the exchange rate mechanism four years too late, and probably at the wrong exchange rate. But we cannot make things easier in the short run or better in the long run by trying to skip out of this obligation now. We may have started in the wrong weather and along the wrong route, but we are halfway up the rock face now, and it is more dangerous to go down than to go up.
This debate is an opportunity to turn our attention from immediate matters of life and death to long-term issues of national survival. The coming months will undoubtedly forge strong links of blood and brotherhood with the United States of America, but we would be foolish to bank our whole future on the durability of those ties. Geographical and strategic factors, the pull of internal domestic internal politics, will eventually prevail over ties of gratitude and sheer sacrifice. Britain's future lies in Europe now as much as ever it did before the Gulf war. We must accept the implications of that fact and play our part in shaping the economic, monetary and political purposes of the Community to which we have no choice but to belong.

Mr. Andrew Hargreaves: I wish to deal with a couple of points. As one or two other hon. Members wish to take part in this debate, I shall be as brief as I can. I wish to refer to some of the remarks made by the right hon. and learned Member for Monklands, East (Mr. Smith). I think that one or two of his points were taken a little politically by some of my hon. Friends, and perhaps in his concluding remarks he will clarify his position further.
As my hon. Friend the Member for Clwyd, North-West (Sir A. Meyer) said, there is a measure of agreement between both sides of the House and indeed between both Front Benches on one essential element. It is that a hastened, rushed or rapid movement towards a common European currency would be a disaster. Both Front Benches recognise this and would be bold enough to say that they are opposed to such a course. Their reasons and methods of doing so at present seem to diverge. I feel that the Opposition has missed a trick. If they really believe that, it seems to me that finding the way forward from that position might be to take another look at the very proposals which at the moment they are pooh-poohing. I refer to the proposals by the Prime Minister and the Chancellor of the Exchequer for a parallel currency—the hard ecu.
I recognise that the right hon. and learned Member for Monklands, East has given his reasons for any form of delay and explained the impracticability of any European currency as the desire to get regional divergencies reversed and to have regional convergence. However, I think that he will admit—my hon. Friends have debunked this theory to some degree—that the costs of so doing in any practical sense in the next 10 years might be prohibitive and extremely unpopular with the electorate. Although


perhaps both sides of the House would like to see some of the movement that he anticipates happening, as I am sure would be the view of us all, in the next 15 to 20 years as an ideal solution, the idea that this can be done within the next five or six years, as our partners in Europe might envisage, would be out of the question in fiscal terms.
Therefore, to what step does one look next? One looks at the idea that we want to evolve rather than to have things imposed upon us. I do not think that the right hon. and learned Member for Monklands, East disagrees with that. I think that, secretly, that is probably the way he would most practically see things move as well. It is evolution. It is not simply a matter of market forces or perhaps his repugnance or his party's repugnance in respect of market forces. It is the question of evolution rather than instant compulsion. An enormous range of topics within Europe can be adopted by this evolutionary process— 1'accord de petits pas that has already been referred to.
A British approach—I appeal to the Opposition to give this matter some thought—with some degree of bipartisan commitment towards that sort of principle, even if there were different interpretations of it, would greatly enhance the appeal that we might find among other countries in Europe. That would probably find an echo in Germany, Italy and Spain, not just among the Christian Democrats but among the Social Democrat and Socialist parties. I appeal to the right hon. and learned Member for Monklands, East in his reply to touch on whether I have not at least found some measure of accord between both sides of the House.
One area about which I am particularly concerned is the question of the practicability of monetary union in a political sense. I used to be an international banker and still have connections in that direction. I was telephoned in the latter part of last year by three or four incensed French international bankers, including one very senior official from the Banque de France, because the previous day that bank had lowered its interest rates by half a per cent. The following day—without consultation; without even a telephone call—the Bundesbank raised its interest rate by I per cent. That caused extreme embarrassment to the Banque de France, which, the day after that, had to raise its own rate by 1·5 per cent.
That illustrates my fears about the workings of the hurried economic union envisaged by Delors. In practice, the Bundesbank would call the tune and everyone else would jump to it. I do not believe that the Opposition wish to pursue such a course, and I know that Conservative Members do not. Moreover, I do not think that it would be in the interests of the rest of Europe, including Germany and the Bundesbank itself. We need a step-by-step approach.
In that context, I commend the proposals for a European monetary fund advanced most recently by my right hon. Friend the Chancellor of the Exchequer. The EMF that he envisages contains some of the better features of the IMF, and certainly has the fiscal potential to assist member countries with weaker economies. In that regard, it could be enormously valuable. Those on the Opposition Front Benchers should take a second look at that proposal, which I do not consider antipathetic to their wish to maintain some political accountability while also achieving certain ends.
I agree with what has been said by my hon. Friends the Members for Stamford and Spalding (Mr. Favell), for

Carshalton and Wallington (Mr. Forman) and for Bury, North (Mr. Burt): we are discussing two separate issues, economic union and monetary union. We can all strive towards the achievement of economic union through the opening up of the single market; monetary union, however, has political implications, unless a mechanism is introduced to dilute the political aspect and make it more fiscal.
An alternative exchange rate—ultimately, a freely convertible exchange rate—offers that opportunity. Admittedly, as more and more people use it—especially in the commercial world—it could eventually lead to the introduction of a single or common currency; it would, however, exist as a common currency for some time before it became a single currency, and that would allow a sufficient period for the evolution of political structure and accountability to take effect. I am therefore less worried about that aspect of monetary union than are some of my colleagues.
What hon. Members on both sides of the House must recognise is that, whatever path we choose, the removal of exchange rates as an effective economic tool is not just going to happen; it is here already. We are already finding that, within the EMS structure, our ability to use exchange rates has been reduced. There is no doubt that both the French and the British Government are now in a position to lower interest rates: inflation is on its way down, and all the recessionary indicators suggest that that time is approaching, if not already here.
We cannot do so, however, because the Germans fear that the significant amount of capital needed to rebuild the east German economy will push up German inflation. They are therefore raising or firming their own interest rates and subsequently their exchange rates. That means that we, in turn, are unable to move. The patient has taken the medicine but its recovery, both here and in France, is threatened—in this case by another member state, Germany.
That is the discipline that the EMS has already placed upon us. That is why we must recognise that the removal of significant exchange rate divergence as a monetary tool is already here. Likewise, the removal even of significant moves in exchange rates is already here. It is no longer a tool that we can use at our own discretion. Therefore, it does not pose a significant threat in the future. It is something that we could live with if the system and the structure were allowed to evolve along the lines proposed by my right hon. Friend. Therefore, I commend those measures to the House.

Mr. Patrick Ground: There are increasing attractions for businesses and travellers in having a currency which can be used without transaction costs, and, in the case of business, without hedging, throughout the European Community. However, it is apparent from this debate that the time scale within which this could be achieved and the means by which it could be achieved are still very unclear. I very much hope that the present negotiations will lead to an agreement which can be reconciled with the aspirations of all 12 countries concerned.
I believe that there are elements in the hard ecu proposals which could contribute to such an agreement, and I believe it is an advantage of those proposals that they


could be the most practical way for the Community as a whole to move towards monetary union. I see two principal advantages in the proposals.
First, I see advantages in allowing producers and customers to determine the pace of advance towards monetary union. Travellers and people who are selling goods and services to the Community could decide to take ecus instead of existing Community currencies. Although the hard ecu would not be legal tender, nevertheless it could be accepted in hotels and shops just as the dollar is accepted in certain Latin American countries and the deutschmark is accepted in Luxembourg. For business, it could be a matter of agreement to use the ecu rather than any other Community currency.
Secondly, I see advantage in that the hard ecu provides a mechanism for testing the system of administration of the proposed single currency before it is fully implemented. It is obvious from the drafts, from both the European monetary union and the central bank, that there are areas where considerably greater thought and experience are required before we can be confident that the proposals will work and will commend themselves to the people of 12 countries.
I was amazed when I heard the speech of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), because I did not realise that there were such experienced and continuing apologists for the role of devaluation and inflation. When I heard him speak, I understood why the two Labour Governments since the second world war that inherited fixed exchange rates both had to devalue the pound. However, I find it astonishing that the disadvantages of those policies should not have come home to the right hon. Member and that he had not noticed that our most successful competitors in the world have ignored this route and followed a completely different path of avoiding devaluation and successfully competing in their exports.
Since 1979, the country has been embarked on a different course. It would be a mistake, either in the House or in the Community, to underestimate the significance of that change of course or the determination to continue with anti-inflationary policies. Although the present rate of inflation is unacceptably high, the average rate of inflation since 1979 is only one half of what it was during the period of office of the Labour Government of 1974–79. In relative terms, the pound has held its value compared with most continental currencies.
It is true that the deutschmark has appreciated against sterling, as it has appreciated against other currencies, but the value of the pound against the dollar is similar to what it was immediately after the 1979 election. The pound had appreciated against the franc, against the Italian lira and against the Spanish peseta. In relative terms, sterling has held its value better in the past 11 years.
After the experiences of the 1970s, many more people now see the advantages of lower inflation. It is significant that, in the past three general elections, the party with the less inflationary policies has been successful. People at work increasingly recognise the advantages of being paid in a currency that holds its value. Pensioners recognise that it is better for their pensions and savings to be in a currency that holds its value.
Joining the exchange rate mechanism and taking part in the negotiations on monetary union are part of the anti-inflationary course on which this country has been embarked since 1979. I reject the advocacy of devaluation which has been practised by some in the House tonight and outside the House in certain quarters. There is a good prospect of succeeding in holding sterling within the currency band that we have chosen. I agree with my right hon. and hon. Friends that devaluation is not the answer. It is important that it is realised in this country and in the rest of the Community that there is considerable determination here to make a success of the course on which we have embarked by entering the ERM and by entering the negotiations in which the Government are currently involved.

Mr. Tony Favell: I will take only two minutes, Mr. Deputy Speaker. I want to say why I am opposed to a single currency and why, regrettably, I too am opposed to the hard ecu plan. The single currency will inexorably lead to political union. That view is held by my right hon. Friend the Member for Blaby (Mr. Lawson) and by my right hon. Friend the Chancellor of the Exchequer, and by many other right hon. and hon. Members of all parties. I will not quote them now; I will save their comments for a rainy day. I shall especially save the excellent speech that my right hon. Friend the Chancellor made in November. It is engraved on my heart, and I shall produce it on a suitable day, but not now.
I oppose the hard ecu plan for two reasons. Either the other 11 members of the Community, which have already said that they are in favour of a single currency and a single bank, will reject it out of hand because it will not lead to a stable currency, in which case we are back where we started arguing about what we should do about a single currency, or, alternatively, they will accept it. If they do, it will be for one reason—because they believe that it will lead to a single currency. My right hon. Friend the Chancellor has already said that he believes that it may well do so at some time or other. It will lead there even more quickly then Mr. Delors intends because the Commission will ensure that it does. Mr. Delors and all the federalists, both here and on the continent, realise that a single currency is the way to political union.
I believe that the single currency is a Trojan horse to a united states of Europe, and I believe that the hard ecu plan could well be the wheels on which that Trojan horse takes us there.

Mr. Chris Smith: One of the common themes running through much of our debate today has been the need to recognise that we live in an increasingly interdependent world. As economic activity becomes more transnational in character, we have to establish ways of working more closely together and co-ordinating our economic decision-making. This will become even more essential after the onset of the single market at the start of 1993.
In this debate a number of my hon. Friends, especially perhaps my hon. Friend the Member for Leeds, West (Mr. Battle), have recognised this inevitable truth. It has


perhaps not been accepted in its totality by one or two others of my hon. Friends, who have expressed their views with their usual robust vigour.
My right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore), who has indicated to me that he has to be in his constituency this evening, spoke, for example, of Britain's entry into the exchange rate mechanism and said that it would have inevitable deflationary consequences. That is indeed the case unless —it is a very important "unless"—we improve our economic performance, because the iron logic of membership of the exchange rate mechanism is that there are only three options open to us—to create unemployment, to reduce real wages, or to improve our industrial productivity and performance.
It is because of that iron logic that it becomes even more important for us to adopt the approach to supply side improvement for which Opposition Members have been arguing for months. The crucial need for that improvement was recognised and put very clearly indeed in the excellent speech of my hon. Friend the Member for Burnley (Mr. Pike).

Mr. Spearing: I am very grateful to my hon. Friend for giving way, poor substitute though I may be for my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore).
Of course, everyone in the House recognises that greater international co-operation in many endeavours, including those in the financial field, with techniques and trade increasing, is absolutely essential. The point that my right hon. Friend raised is this. If, through the activities of the Government, our industrial potential does not make the inevitable requirement of improved industrial performance possible, does not advocacy of the ERM consign us inevitably to the other two options?

Mr. Smith: My hon. Friend rightly identifies a failure in policy on the part of the Government. That failure would be fatal for our domestic economy whether or not we were in the exchange rate mechanism, but it would be especially fatal to us now that we are in the mechanism.
It is clear to us that closer co-operation within the European Community on monetary and economic policy is both inevitable and desirable. The key questions are how that process occurs, who makes the decisions and what the end product is. The Government's response to those issues and crucial questions has been deeply inadequate. The style, of course, has changed in recent weeks—the tone is more communicative—but the substance remains entirely the same as it was when the right hon. Member for Finchley (Mrs. Thatcher) was in charge. The only proposal currently on the table from the British Government—it formed the bulk of the Chancellor's opening speech—is the hard ecu plan. If anything, the Government's latest working up of the hard ecu idea in the proposed treaty amendments for the intergovernmental conference is an even less attractive proposal than was the initial suggestion that Sir Michael Butler first drew up.
There are three principal problems with the hard ecu. First, it remains unclear whether the entire exercise is designed to provide a transition to a single currency, or to prevent such an occurrence by offering an alternative. The Government are, I fear, still entirely ambiguous on the subject. The right hon. Member for Hertfordshire, North (Mr. Stewart) insistently asked about the objective of our

policy. He might perhaps have been better occupied in addressing precisely the same question to his own Front Bench.
We have, of course, had conflicting information from the Government. On 9 October, the Financial Secretary told the House of Lords Select Committee that there could be a faster route to a single currency even than the Delors programme. The former Prime Minister told us on 30 October that it would not become a single currency, because no one would take up the idea. The current document that the Government have tabled in the past couple of weeks says nothing at all about a single currency. It says an awful lot about the European monetary fund, but it does not tell us whether the Government intend the use of the hard ecu to move in the direction of a single currency.
We are left wondering. Is the hard ecu simply a device to cover up the Government's embarrassment, is it a minor tightening up of the current basket ecu—a point taken up by Karl Otto Pohl in his speech to the London School of Economics—or is it a way of proceeding to full economic and monetary union? I suspect that the answer is that it is actually all those options at the same time. The Government wish to keep all those options in play so as to keep the disparate forces behind them in line. The Chancellor, I fear, cannot go on riding three horses at once forever.
Secondly, the Government give great detail in their document about the proposed structure for the new European monetary fund. There are, however, alarming indications in the document "Economic and Monetary Union—Beyond Stage One", about the powers and degree of accountability that they envisage for the European monetary fund. In article V, the Government propose—their ambiguity extends not only to the whole purpose of the hard ecu scheme but to the nature of the European monetary fund—two alternative mechanisms.
The first of those mechanisms is a totally independent EMF. The Government pick up the wording of the Commission document and of the Herman report in the European Parliament. They say quite clearly:
the Governing Board and Executive Board of the European Monetary Fund shall be completely independent and shall neither seek nor take instructions from any Community institution, national government or any other body or person.
That is put forward by our Government as a viable option within the document that they are tabling at the IGC. If we link with that option the proposals in articles VI and IX of the document, we see that it is the independent rather than the accountable route that the Government are seeking to follow.
The European monetary fund proposed by the Government would be made up entirely of central bank representatives, the Government propose yielding up democratic control to a committee of unelected bankers. That would be entirely unacceptable to the Opposition.
Thirdly, the Government fail to appreciate the inevitable, if haphazard, effect of adopting a common, readily available, undevaluable currency in exact parallel with a weaker domestic currency. In such circumstances, there would be an inevitable drift from the domestic currency to the hard ecu.
Whatever the Chancellor may say about the Government's intentions, over time the common currency would inevitably become a single currency. We would


discover that we had arrived at a single currency without any real planning or forethought about the process. The only way of stopping that would be for the Government to place limits on the use of the hard ecu alternative currency within our domestic economy, but the Government specifically ruled that option out in a parliamentary answer to me some months ago.
This afternoon the Prime Minister made much of the market-driven nature of the hard ecu proposal. To the Opposition, that is precisely the problem. The Government's proposal yokes together an unaccountable central bank and an entirely market-led approach to the use of the currency provided. That is the worst of both possible worlds. The timetable and the ground rules will be determined by the players in the marketplace rather than by democratically elected representatives of the people. We do not wish to see that happen.
As the inevitable progress to a single currency takes place, there will be a further problem. It will begin to cause sharper disparities between those whom I would call the insiders of the system and the outsiders. The hard ecu scheme has an unsuccessful precedent. On 1 July 1920, the franc was introduced into the Saarland as a second currency of legal tender with the aim of offsetting the then plummeting reichsmark. Unfortunately, the extra currency did nothing to stabilise the markets, despite the existence of an integrated market in the Saarland between both Germany and France. It impoverished the retail sector and small industries and allowed a safety net only for those with substantial savings.
In exactly the same way, those who would gain most from a hard ecu, especially in the early days, would be people with a day-to-day knowledge of the financial market and people with large resources, often at the expense of those with limited knowledge or limited ability to capitalise on the marketplace. A market-determined system will inevitably lead to such consequences. The Opposition seek a democratically determined system, no arbitrary timetables, no side-show stuff—that is exactly what the hard ecu is—and no selling of the pass at the outset.
It is as irresponsible to accept economic and monetary union, a single currency and a central bank at any price and in any shape—as I fear the Liberal Democrats sometimes appear to do—as it is to rule the option out completely. We want a recognition that a process of integration is under way and under discussion. We want Britain to play a full and constructive part in that process. We want a determination to see that process shaped according to the principles and conditions that will most benefit the British economy and people.

Mr. Maude: The hon. Member for Islington, South and Finsbury (Mr. Smith) has, at some length, gone into what we should not be doing. Will he now tell us what we should be doing?

Mr. Smith: The Financial Secretary anticipates the next five or six minutes of my speech. I am grateful to him for spotting exactly the point at which my speech ceases to be a sharp and cogent criticism of the Government's proposals and becomes an outline of the Opposition's proposals.
Our proposals are fully in accord with the views of all —I stress all—our democratic socialist partners in the European Community countries. The following are the principles that we bring to the approach to economic and monetary union. The first is an understanding that we must not consider monetary policy and monetary instruments in isolation from the overall approach to the economy of Europe. That is why we place such emphasis on the potential role of ECOFIN, making it a permanent forum for all the Governments of the Community, including our own, to play a part in determining, democratically, the overall aims and objectives of any monetary institutions. The Government touch on that possibility in article IX of their document, but in a minimalist fashion.
Secondly, there must be democratic accountability for any central bank, not in its hour-by-hour operation, but in the general direction of its policy.
Thirdly, there is a need for a strengthened regional policy. Much has been made of that point by a number of hon. Members in this debate, not least my hon. Friend the Member for Newham, North-East (Mr. Leighton). It is important to distinguish between two hostile arguments.
Some people argue against the very principle of regional policy. The Government, in particular, tend to take that line. Their somewhat dated document, "An Evolutionary Approach to Economic and Monetary Union", brought us the 12 regional currencies idea. That lasted about two and a half months. It sets out clearly the Government's opposition to the idea of regional policy as the principal mechanism—once the use of the interest rate and exchange rate mechanisms has been ruled out—for addressing imbalances within any integrated European economy. We believe that we need regional policy to begin to address those imbalances—and, of course, to iron them out completely. We need to see those imbalances in a domestic context as well as a European context.
Others argue that regional policy may be right in principle, but that such enormous amounts of money would be required to have an impact that it would become impractical. It is true that, over time, large sums of money would need to be provided. But we should argue—and the Opposition have consistently argued—that there should be a shift within the existing European Community budget, from agricultural support to regional and structural support. In the long term, that is the key to unlocking the funds that may be needed.
Some people have argued that Britain would be a net contributor. I do not believe that that would be the case, but those hon. Members who make that argument miss the crucial point—we are talking about region-to-region transfers, not just nation-to-nation transfers. Do those hon. Members believe that in Wales, Scotland, the north, the north-west and inner London there are not needs to be met and poverty to be addressed? Some of the things that they have been saying today suggest that they do not believe that those problems require tackling.

Sir Russell Johnston: Will the hon. Gentleman give way?

Mr. Smith: I shall not give way, as I have only a couple of minutes left.
Fourthly, there is a need for a degree of economic convergence before currencies can be irrevocably locked together. In 1979, we had broad economic convergence on


a host of indicators. Our economic performance was, broadly speaking, at the European average. It is a measure of the Government's economic incompetence that during the 1980s—

Mr. Maples: On inflation.

Mr. Smith: I should point out to the Economic Secretary that I am right about inflation. In 1979, when the Government came to power, Britain had an inflation rate at the European average. It is now more than twice the European average. It is a measure of the Government's economic incompetence that, during the 1980s—the decade of unparalleled opportunity arising from North sea oil—they have plunged our standing and our performance from the European average to the bottom of the European league.
Our current position—I remind the Economic Secretary of this, as he seems to need remirjding—is one of falling output, falling productivity, falling industrial investment and business confidence, and steeply rising unemployment. Our economy has been gravely weakened and it will take us time to catch up. It will take a Labour Government to begin that process and to secure the best place for the people of Britain in the Europe of the future.

The Financial Secretary to the Treasury (Mr. Francis Maude): This is the second time that I have had the pleasure of making the winding-up speech in a debate on economic and monetary union. The first time was in November 1989, when I was a Minister in the Foreign and Commonwealth Office. Since then, these matters have been gathered fully into the hands of the Treasury, and I have been gathered with them.
It is genuinely a privilege to make this speech because these matters affect the House of Commons profoundly. They go to the heart of what it does and has done for many hundreds of years. These debates bring out the best in the House of Commons. This has not been a partisan debate. Differences have been passionately and strongly argued, but divisions have not run on party lines. Because these matters are important for the House of Commons, we take seriously this opportunity to hear the views of the House and to understand the mind of the House.
We have heard some immensely distinguished speeches. Although I do not have the time to mention them all, two made a great impression on me—those of the right hon. Member for Bethnal Green and Stepney (Mr. Shore) and of my hon. Friend the Member for Clwyd, North-West (Sir A. Myer). The right hon. Gentleman spoke with great eloquence and magnificent savagery about the stance of his party.

Mr. Chris Smith: And about the hon. Gentleman's party.

Mr. Maude: No, the right hon. Gentleman was rather complimentary about the Government's position. I recollect that he expressed the wish that his party might speak on this subject with the clarity with which we spoke.
My hon. Friend the Member for Clwyd, North-West speaks from a standpoint on Europe with which we are all familiar. He spoke quite passionately and eloquently, but he also spoke candidly about the shortcomings that the

European Community has displayed. It is not being negative or anti-European to refer to these shortcomings, as he would be the first to recognise.
That illustrates an important point for the debate. It is not about being pro or anti-European. It is about what steps the European Community should take to improve and advance itself. Should it take sensible steps that will benefit all member states and all within each member state, or will it take wrong steps that will cause the European Community to falter?
We believe it to be of profound importance that the Community should take the right steps in a measured and sensible way, having fully appraised all the possible and probable consequences. Of course, the forum in which these matters will be decided is the intergovernmental conference, which has started and will continue next Monday.
The right hon. Member for Bethnal Green and Stepney expressed concern about a Commission paper that sets out some draft treaty changes. It is important to stress that that is a Commission paper, whereas the conference is intergovernmental. These are not matters that will be decided by the Commission. Certainly the Commission does not have an exclusive right of proposal to the intergovernmental conference. Indeed, it has no right of proposal at all, save with the consent of the conference. I can assure the House that the Governments taking part in this conference are jealous of their right to take these decisions—and rightly so.
Most of us are familiar with the remarks made by M. Delors after the Rome meeting of the European Council. He talked about whether it might be necessary to provoke a political crisis if things were not to go quite as he hoped they would. I can assure the House that it does not lie within his power to provoke a political crisis. These are matters that will be decided between Governments and by Governments. I can assure the House also that the British Government will take a very full part in those discussions —a part that I believe will be of central influence and central importance.
We have debated two broad questions today. To some extent, they are separate. The first relates to what we believe should be the Community's next step in the economic and monetary field. The second relates to the attitude that we should take to the goal of a single currency and a single monetary policy—the goal of full currency union. On the first question, we believe that attention is increasingly focusing on the next steps and that the debate is increasingly practical and pragmatic. As to the second question, we have set out very clearly our suggestions and proposals for the creation of a non-inflationary common currency, with a new European monetary institution to administer it.
Hon. Members raised a number of points about those proposals—points about how they would work and about how attractive their effect might be. However, there has been very little broad dissent from the notion that this is a sensible set of steps to take. It is sensible that, at the next stage, we should have a common currency with a monetary institution to manage it. That will enable all 12 member states to go forward together with arrangements that will benefit everyone. It will accommodate the aspirations of all member states and will meet the concerns that are expressed in this House. Clearly, it is gaining a good deal


of support. My right hon. Friend the Chancellor, in his opening speech, set out some of the support that it is gradually gathering.
The Leader of the Opposition, after a fleeting visit to Madrid in the middle of December, announced to the world that the British hard ecu proposal was dead—"stone dead" is the expression that I think he used. Such is his customary sureness of touch that that pronouncement in itself was enough to stimulate around the Community several expressions of support for the proposal.
The right hon. and learned Member for Monklands, East (Mr. Smith) was, wisely, rather more circumspect in his remarks about our proposal. I can assure him that the proposal and the idea of a common currency as the next step for the Community are gathering increasing support. He rather misrepresented the proposal's effect, as did his hon. Friend the Member for Islington, South and Finsbury (Mr. Smith). He suggested that it might lead to a single currency imposed in some way by the market, that there could be such a massive substitution of national currencies through the hard ecu that we could suddenly arrive at a single currency with no further decision taken by Governments or parliaments.
I can assure him that that would not happen, because there could not be a single currency without national parliaments taking a decision at a later stage to abandon their national currency. The hard ecu could not suddenly act as the British single currency without the House of Commons having made a considered decision to abandon the pound sterling. I am happy to be able to reassure the right hon. and learned Gentleman on that point.

Mr. Spearing: But is that not taking account of the difference between currency and legal tender? If both currencies become legal tender and a preference emerged for one—my hon. Friend says the hard ecu—although the pound sterling might be legal tender, practice might mean that it disappeared. It would exist only de jure, and a de jure cancellation of it would be necessary but not a matter of practical moment.

Mr. Maude: I am happy to reassure the hon. Gentleman. The matter of legal tender is of slight importance. My right hon. Friend the Member for Hertfordshire, North (Mr. Stewart) is something of an expert on the matter, and he made it clear that, for a currency to be used, it does not have to be legal tender. He made the point vividly by saying that Scottish bank notes are not legal tender in this country but that they can be and frequently are used here, even within this building, or particularly within this building. With two Scottish Members on the Opposition Front Bench, the number of Scottish bank notes circulating in the building might increase. It is certainly not essential for a currency to be a legal tender. It is of comparatively slight importance whether a currency is legal tender or not.
The hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) wondered whether there would be advantages in this currency for borrowers. I believe that there would be substantial advantages. This would be a currency with a good store of value for both borrowers and investors. It would not be able to devalue against the other strongest currency in the EC and thus investments

made in that currency would hold their value well. Investors like to be sure that the currency that they are borrowing will retain its value.
I believe, and all the evidence suggests, that the currency would be attractive. We believe that its first use would be in the area of investments. It would be used by businesses operating across frontiers in the Community to reduce their transaction costs in a way that is said to be one of the great advantages of a single currency. One would be able to harvest many of the purported advantages of a single currency by creating this common currency. It would be used increasingly by those who travel across frontiers in Europe. In that way, it would increasingly be used and it would be an attractive development for the Community and for our citizens in the Community.
My right hon. Friend the Member for Hertfordshire, North also wondered what protection there would be for the European monetary fund should one of the national currencies which the fund was holding in its reserves depreciate radically. First, if the European monetary fund found itself holding excessive amounts of a national currency, the repurchase obligation would come into effect. The obligation of the national monetary authority to repurchase its national currency using the hard ecu or another EC currency would be operated, so that itself would be a discipline. But should there be a realignment which causes the value to depreciate, a possibility is set out in our proposals.
Paragraph 6 of article VI—which is in square brackets because it is a possibility at this stage—provides an obligation that national monetary authorities should guarantee the value of their national currencies held by the fund.
I hope that that deals with most of the issues raised on the hard ecu proposal. Again, I assure the House that the idea of a common currency is discussed increasingly and is increasingly attractive to those who have the real interests of the European Community at heart.
The second question is what the attitude should be to the move to a single currency. Most of the debate has rightly been on that issue, because it is of huge importance to the House. It provoked many passionate and eloquent speeches, such as that by the right hon. Member for Bethnal Green and Stepney which I have already mentioned. Most hon. Members know their minds on the subject and know where they stand on whether there should be a commitment now to a move to a single currency. Two of the few equivocal speeches on the subject were those of the right hon. and learned Member for Monklands, East and his colleague, the hon. Member for Islington, South and Finsbury. They were profoundly equivocal.
The matter is of economic and constitutional importance. It is important economically because of the devastating impact upon the economy of member states if it were done prematurely before the economies of the European Community had converged sufficiently and were prepared to accept the huge stresses that the introduction of a single currency would bring.
It would be premature to move to a single currency before proper economic convergence had been achieved. I am not talking necessarily about a convergence of levels of income but certainly about a convergence on inflation performance, interest rates and budget deficits or surpluses. On all those matters, as my right hon. Friend the Chancellor said in the opening speech, there is massive


divergence. On any view, it would be many years before there was enough convergence for a single currency to be introduced without the gravest economic dislocation.
For some, economic dislocation would provide perhaps the opportunity or the excuse for a programme of massive resource transfers. It became increasingly clear that that was the let-out for the Labour party, which believes that, because everyone else thinks that we ought to do this, we should agree to do it as well, leaving the problems to be sorted out later. Opposition Members seem to think that a fairy godmother will appear in the Community and unleash vast amounts of money which will flow around the Community to ease the discomfort and dislocation. I have to tell the right hon. and learned Gentleman that there is no fairy godmother.
If there were to be a massive increase of the sort that would be needed in the structural funds, a good part of that money would come from this country, from British taxpayers; it would leave the shores of Britain and would go elsewhere. The elegant idea propounded by the hon. Member for Islington, South and Finsbury that it would not be a nation-to-nation transfer but a region-to-region transfer does not solve anything. It would still be British taxpayers providing money, which would leave Britain to go to other member states. These are powerful arguments for not committing ourselves to move to a single currency, and I can assure the House that we shall not ask the House to do that.
The constitutional arguments are also important. The idea of parliamentary sovereignty is something derided. It is sometimes thought to be of slight importance. Sometimes it is argued, as it has been tonight, that there is already little autonomy, so why should we bother? It is also sometimes argued that other member states do not bother much about this, so why should we? I think that it does matter. The Chancellor of the Exchequer in the United Kingdom must account regularly to the House of Commons for his conduct of monetary policy; this has been the position for several centuries. It is not always comfortable or convenient for Chancellors, but it is rather important for the authority of the House that it should happen. It does not happen in other member states of the European Community.
It being Ten o'clock, the motion for the Adjournment of the House lapsed, without Question put.

MOD Quality Assurance Unit

Motion made, and Question proposed, That this House do now adjourn.—[Mr. David Davis.]

10 pm

Mr. Tim Devlin: This is an extremely difficult time for the Ministry of Defence and I do not want to add unduly to its burdens at the moment, but I believe that the present crisis in the Gulf and the distractions of Ministers and senior civil servants may be being used as an opportunity to thwart Government policy on the dispersal of civil servants to the regions. This issue is bigger than simply that of whether this unit should be moved; it concerns the trust that the people put in the Government's word, and it is an issue of management because tonight I want to ask the Minister whether he will allow this trickery to frustrate his predecessor's policy. We have a right to know who is in charge of the Ministry of Defence, Sir Humphrey or the Secretary of State.
Let me briefly set out the facts of the matter as I see them and so that everyone else can see what is going on. The Government's policy on relocation is set out in the written reply by the Paymaster General, then my right hon. Friend the Member for the City of London and Westminster, South (Mr. Brooke), to a question from my hon. Friend the Member for Beverley (Mr. Cran) on 9 February 1989 at column 751.
In pursuit of this policy, first announced in 1979, with my hon. Friends the hon. Members for Darlington (Mr. Fallon), for Langbaurgh (Mr. Holt)—whom I see here this evening—for Hexham (Mr. Amos), and for Tynemouth (Mr. Trotter}-who has sent his apologies—I went to see the Secretary of State for Defence in late 1988 to secure the movement of the Department's quality assurance unit from cramped and inadequate premises on three sites in Woolwich and Bromley in south London. A bid was prepared by the newly formed Teesside development corporation on the basis of one of its five flagship development sites in Teesside, the Preston Farm industrial estate. As usual, the development corporation carried out an excellent job in presenting the manifold advantages of such a move from Woolwich and Bromley to the north of England.
The project was costed at ·72 million, and the TDC obtained two tenders from established and reputable civil contractors in that amount. In anticipation of the sale of the Bromley and Woolwich premises, which in part could already achieve about ·50 million, it was expected that the relocation could be largely self-financing. An unusual finance package had then to be put together for the Ministry of Defence to bridge the development of the new site and the disposal of the old sites.
When the Treasury would not give immediate consent, my colleagues and I approached the then Prime Minister, my right hon. Friend the Member for Finchley (Mrs. Thatcher), to ask for her support. This was readily forthcoming, and on 4 July 1989 final approval of the project, now costed at ·120 million, was given by the then Minister for Defence Procurement, the hon. Member for Hove (Mr. Sainsbury).
In September 1989, the present Secretary of State took over, and I invited my right hon. Friend to visit the constituency and to turn the first sod on the development. It was anticipated then that, once the redeployment was completed, savings in revenue costs of the order of £9


million a year would accrue to the Department. The development corporation immediately began development of the site and negotiations were started to move three explosive testing units to the same site, so that all Ministry of Defence quality assurance could be centralised in one place.
Those further moves were announced on 25 January 1990, once again in a written answer to me. Work continued apace until 10 August last year when, only seven months after its announcement, the enlarged project was stopped by a letter from Mr. Miller, the director general of quality assurance. In that letter Mr. Miller said that his department had received the first estimate from the consulting engineers, Atkins, of the cost of the detailed design of the buildings and that these were
very considerably higher than PSA's figures adjusted for addition of the outstations and inflation … This has forced us into a cost-cutting exercise … and a reexamination of whether it makes sense … to replicate on Teesside all our existing facilities.
Later in the letter he said that major contracts associated with the move should be deferred until a re-examination of the costs had been completed.
In my view, and that of all my hon. Friends, the Department would be quite right to hold up this project if, as I am told, the costs have soared from ·120 million to between ·250 million and ·280 million. However, it has become apparent that the Atkins costing is fundamentally flawed, and the Ministry of Defence knows it. The structure and layout of this facility in the plans would make it the most expensive construction ever built on Teesside. Per square foot, it would be nine times as expensive as premium office space under construction on the neighbouring plot.
Atkins is a firm of consulting engineers, not property specialists, and that might, in part, explain what is going on. However, let the House not imagine that this is some complicated venture. We are talking about offices, laboratories and warehouse space of a type commonly constructed on Teesside. The rocketing cost appears also to stem from a specification which can only be described as grandiose. The laboratories are larger than those used in the nuclear industry. That is why the chief executive of the Teesside development corporation has been attempting to get a copy of the specification and the costing from Mr. Miller, safe in the knowledge that Teesside can produce a much more reasonable quotation on a sensible specification.
I put that point to the Secretary of State and the Minister when I saw them formally with my hon. Friend the Member for Tynemouth (Mr. Trotter) last year, but I am sorry to say that we have not yet received those documents. As a result, the cost of this project has mysteriously dropped by ·100 million. So officials have now fallen back upon a second tack—"We can't make a decision because of 'Options for Change', the defence White Paper." They even convinced the Secretary of State that the future of the quality assurance unit might be up for grabs, or in question.
On 4 December 1990, I said in the House that the only acceptable way that this redeployment could be cancelled would be if the whole unit were to be closed down by defence cuts. The chief executive and I have been reassured more than 20 times that the fundamental integrity of this

project was not in jeopardy. That is why I have urged concerned local councillors not to panic. However, in spite of my many efforts to get those reassurances in writing, they have not been forthcoming.
I did not have any reason to doubt the bona fides of the Ministry of Defence officials until recently, when the full extent of their double dealing came to light. I now understand why the reply to my request for the specifications from the Secretary of State was as follows:
The issues being considered are wider in scope than the affordability of the DGDQA as planned.
This was because, early in the new year, suspicions were aroused that the director general was examining a move to Portland, in Dorset. That was confirmed when my colleague who represents that part of the world—the hon. Member for Dorset, South (Mr. Bruce)—started asking me questions about Stockton's interest in the matter while we were on a delegation visiting Israel.
Therefore, it is not the case that the quality assurance unit is about to be closed down completely. The price tag that the Government have put on the project is ·140 million. Portland, which would be a patch-and-build operation, works out at ·135 million—surprise, surprise. Teesside works out at ·180 million on the specification which they will not disclose. This is absolutely disgraceful. Unless the Minister gets to grips with his Department, he will be forced to resile on a firm commitment made to the people of Teesside to move 1,500 jobs to the area. The Secretary of State will be forced to welsh on the promise given by his predecessor and endorsed by the former Prime Minister, and the faith which the people have put in the Conservative Government to deliver their promises will be undermined.
I see from articles in the press that there is speculation that the Government are to dispense with Portland as a naval base. That appears to be confirmed by what is going on in this case. While my heartfelt sympathies go out to the loyal citizens of that town for their long service to the Navy, it is in no way fair to break faith with the people of Teesside in order to soften the blow in Portland. The Ministry of Defence should therefore find the solution to that problem in the many other unannounced redeployments which it is considering.

Mr. Richard Holt: The people of Teesside deserve better from the Government than they have had over this issue. As my hon. Friend knows, this is not the first time that major Government Departments have decided to move to that part of the world and have failed to do so. Every time we ask questions, we are given the trite answer that four fifths of all civil servants live outside London. If one takes all the people who work in the Department of Health and Social Security offices, job centres and everywhere else, that is bound to be the case. But no senior civil servants live outside London. It is because none of them will move to the north of England that we who represent Teesside suspect that what my hon. Friend is saying this evening is absolutely correct.

Mr. Devlin: There was one project 10 years ago when the previous Labour Government promised to move the Property Services Agency to Middlesbrough. The incoming Conservative Government cancelled it, because they wanted to privatise the PSA. That has not been forgotten. But it is different in this case, because the same


Government who promised it are now seeking to withdraw it. In the previous case, one Government promised it and another Government then cancelled that commitment.
Perhaps we should wait to see the outcome of the present war before we reshape the nation's defence capability. The Under-Secretary of State for Defence Procurement who I know to be a good friend to the north, should not on any account give in to a bunch of southern backsliders. Before my hon. Friend the Minister goes any further down this disagreeable route, I point to six reasons why he should now reaffirm the commitment which the Government made to the people of Teesside, and ask him to confirm two things.
First, such a development would have a major effect on the local economy, and particularly the training of good scientific skills. Indeed, youngsters from Teesside are already training in London for their new jobs once the move takes place. Secondly, the unemployment rate in Stockton is 10·7 per cent., down in the past two years from 18 per cent., whereas in Portland it is only 6 per cent., and until recently has been 4 per cent. Thirdly, this unit would benefit greatly from good access and infrastructure links. These are available on Teesside and are being further developed to take this development, whereas they are not available at alternative sites.
Fourthly, on Ministry of Defence costing criteria, whether one looks at a 20 or 50-year payback period, a patch-and-build scheme will need further expenditure sooner than a complete new build. Fifthly, the project as announced fitted in with the Government's policy of dispersal and played a role in the inner cities initiative, going as it was to an assisted area, in particular, it was a key site for the Teesside urban development corporation.
Lastly, and in my view most importantly, we should regard our word as our bond. Eleven years ago, the incoming Conservative Government cancelled the move of the PSA to Teesside so that they could privatise it. The same Government have now made the announcement that this dispersal is to take place and are now seeking to resile from it.
I ask the Minister three questions. First, will he confirm that the benefits that first attracted the Ministry of Defence to the scheme still stand? Secondly, will he give me an assurance that the original site has not been discounted? Thirdly, will he agree that the specification and costing should be given to the Teesside urban development corporation so that it can be re-examined and further representations made to him about the project? I say in conclusion that it will be to the eternal shame of this Government if this redeployment is allowed to fail.

The Parliamentary Under-Secretary of State for Defence Procurement (Mr. Kenneth Carlisle): I congratulate my hon. Friend the Member for Stockton, South (Mr. Devlin) on securing this Adjournment debate. He has represented his constituency's interests both in the House and outside it—not least when he and my hon. Friend the Member for Tynemouth (Mr. Trotter) met my right hon. Friend the Secretary of State for Defence and myself last December. My hon. Friend has pursued the matter with the utmost tenacity and determination, and I respect his anxiety to secure jobs for his constituents and others in the north-east. I am glad to see that my hon. Friend the

Member for Langbaurgh (Mr. Holt) is also present: I know that he too is very concerned about the problem, and has supported the project.
I must, however, reject the assertion by my hon. Friend the Member for Stockton, South that the civil service has been involved in double dealing. The civil service is trying to make the best possible decision for the public, in the most thorough possible way. I am the Minister responsible; I am here to make the decision. If anyone is to be blamed, it is me. I assure my hon. Friend that I have the interests of his constituency at heart, but it is essential to the pursuit of good government to make the right decisions and the best possible use of public funds.
Let me briefly give the background to the proposal to relocate the directorate general defence quality assurance to Teeside, and explain what has led to the current review of that proposal and how matters now stand. As the House may recall, in the mid-1980s many organisational changes took place in the Ministry of Defence, with the twin aims of improving efficiency and reducing administrative overheads.
One of those changes was the establishment, in 1984, of the post of director general defence quality assurance. The DGDQA assumed responsibility for quality assurance matters across the Ministry of Defence, absorbing a number of separate departments. One of the DGDQA's responsibilities is to run laboratories and test facilities to provide technical support to the procurement executive and the armed services. The technical support directorate has approximately 1,100 staff of whom some 700 are scientific and technical officers. It handles some 40,000 tasks a year, including product verification, defect investigation, calibration, technical advice to project managers, advice on health and safety, environmental chemistry and some research and development. When my hon. Friend criticises the expense involved in any new building for the establishment, he should recognise the wide variety of work that the people there are called on to do.

Mr. Holt: Does that catalogue of jobs contain any element that was not known about before the Government's first commitment, or has some new requirement suddenly emerged? The employees have been doing this work for more than 50 years.

Mr. Carlisle: I shall explain later why the cost has risen; I think that that is what my hon. Friend is asking.
Even in 1984, it was clear that it was not enough merely to change the management structure. The new DGDQA inherited more than a dozen geographically separated sites: it was very widely dispersed. If overheads were to be cut and staff numbers substantially reduced, a programme of consolidation on to fewer sites was clearly needed. Some changes could be accomplished quickly—for example, sites at Plumstead in south-east London and Harefield in Middlesex were closed, and their facilities were moved to existing accommodation at Woolwich. However, we were still left with DGDQA operating from three large sites —Royal Arsenal west, Royal Arsenal east at Woolwich, and the Aquila site at Bromley, all in south-east London, and a number of smaller sites around the country.
A study suggested three main options—to continue on the three main sites, to collocate on to the main site of Royal Arsenal west, or to collocate on Teesside, which was considered then the best location for a totally new build


option. On the basis of initial estimates of construction costs and tested by investment appraisal, the Teesside option emerged then as the most cost-effective solution. In March 1989, my predecessor, my hon. Friend the Member for Hove (Mr. Sainsbury), announced our proposal to move 1,500 DGDQA posts to Preston Farm on Teesside between 1993 and 1995. It was subsequently agreed to add to the package the remaining outstation establishments employing a further 100 staff. Thus, the final package comprised the 1,100 technical support staff and some 500 headquarters and support personnel.
Early in 1990, external project managers were engaged, part payment was made on the main part of the Preston Farm site, and detailed planning was set in hand. At this point I would like to express my appreciation for the co-operation and expert assistance of local authorities on Teesside, and in particular the Teesside development corporation, within whose area the site is located.
As work progressed, it became clear that to replicate on Teesside all existing DGDQA facilities, including the outstations, would cost substantially more than the sum budgeted on the basis of earlier broad-brush and non-site-specific costings—

Mr. Holt: rose—

Mr. Carlisle: No, I will not give way yet. My hon. Friend must let me develop my argument. I will give way later.
This was the case even though the plans and costings were based on a reduction in the area of buildings of some 20 per cent. compared with existing accommodation. When the details were worked out, it became quite clear that, because of the specific needs of the DGDQA, the costs were substantially more than we had initially anticipated.

Mr. Holt: rose—

Mr. Carlisle: I am rather anxious to reply to the points raised by my hon. Friend the Member for Stockton, South. It is his debate.
Rather than plough on regardless, which would have been quite wrong, a decision was taken in August 1990 not to cancel or deter the project, but to put it on hold for a short period while we considered how estimated costs might be reduced. That was perfectly reasonable in view of the fact that public money was being spent.

Mr. Holt: rose—

Mr. Carlisle: No, I will not give way. My hon. Friend the Member for Stockton, South has raised these matters; it is his debate.
Design studies had been taken to a point where the cost of constructing individual technical facilities had been identified and it was therefore possible to target these facilities and establish whether costs could be reduced by lowering technical specifications, reducing the size of the building or considering whether a particular task might be undertaken more cheaply or efficiently elsewhere in the Ministry of Defence or by industry.

Mr. Holt: rose—

Mr. Carlisle: I wonder whether my hon. Friend has the permission of my hon. Friend the Member for Stockton, South to make his point.

Mr. Holt: Yes, I do have his permission. The Minister keeps talking about replicating on Teesside. This is relocating on Teesside, not replicating. If one relocates, one does not need the facilities that are down in the south; one relocates to the north, and one does not have the expenditure that replication involves.

Mr. Carlisle: When I talk about "replication", I mean that one has to transfer some of the existing activities in the south up to the north, so one needs to build fairly costly facilities to undertake those operations. We looked, therefore, to see whether we could recast our designs and costs to make the transfer cheaper.
However, this is a more complex matter than might be appreciated, as the technical support directorate conducts tests across a range of disciplines, such as materials science, mechanical engineering, electronics and software engineering, on products ranging from main battle tanks and guns, through fuels and lubricants to explosives and micro-electronics. As my hon. Friends will understand, it is a complicated business. These studies have gone well and, although the gap between the August 1990 costings and the sum budgeted has been reduced substantially by our work, it has not been eliminated.
I have, therefore, asked the Department to identify the further facilities that would have to be cut to get down to budget and what the implications of cutting or reducing capabilities would be, both operationally and financially. When looking at the wider picture, we have to consider, for example, whether cutting capabilities would merely transfer costs to other parts of the Department.
Before ministerial colleagues are invited to take a final decision on the project, I have also asked officials to consider—as circumstances have changed considerably since initial feasibility studies were conducted four years ago—whether costs might be reduced by moving to a site where construction costs could be lower than those anticipated at Preston Farm. This essentially implies a site where surplus good quality technical facilities already exist. Local authorities and central government regional offices have identified several sites on Teesside and elsewhere in the north-east of England which, without prejudice, are worth further consideration and will be inspected within the next week to see whether significant savings, compared with Preston Farm, could be achieved.
As the House will be aware, the process of rationalisation and slimming down, which led to the creation of DGDQA, has continued across the Ministry of Defence and will continue for several years, not least following the "Options for Change" studies, and the decision, following "next steps", to create agencies where that promises to be the most effective way forward. We are in the middle of a substantial programme of change in the Ministry of Defence, and we cannot ignore that in making the decision on DGDQA.
I have therefore asked my Department to consider whether any existing Ministry of Defence sites that might be scheduled for closure could accommodate DGDQA with the prospect of significant savings compared to Preston Farm. Only one such site has been identified, and that is in the south-west of England. It is the Admiralty research establishment, Southwell, at Portland in Dorset


which, as the staff, my hon. Friend the Member for Dorset, South (Mr. Bruce) and other interested parties have been told earlier today, is to be the subject of a study as part of a review of ARE facilities.
DGDQA has been asked to examine, if ARE Southwell were to close, what the savings, if any, might be compared to those of Preston Farm. I must, of course, stress that the closure of the ARE site and its occupancy by DGDQ A are no more than possibilities at this stage, and no decisions have been taken. No decision has been taken on the naval base at Portland either.
I am aware that there are hon. Members who question the need for DGDQA to move away from London. I have to say that, although we will re-run our investment appraisals once the above studies are completed, the work conducted to date by our project managers suggests that the cost of necessary reconstruction on London sites were DGDQA to remain on them is likely to be far higher than for sites outside London and that moving out of London will yield lower staff costs and other running costs in the long term.
To sum up, our cost reduction exercises are almost complete. We will look sympathetically at Preston Farm. If all things were equal, we should like to move to the north, but, in reality, we have to consider all the interests carefully in the purpose of good government. We have to consider the interests of the taxpayer as well as the efficiency of the operation and the availability of spare buildings. It is my responsibility to see that all the options are taken and considered.
Although I thank my hon. Friend the Member for Stockton, South, and although I have considered seriously the wish that DGDQA should go to his constituency, the right way to proceed is to examine all the options if the public is to get proper value for money. I am grateful to my hon. Friend for initiating this debate, and for his understanding and tolerance in the task that we face.
Question put and agreed to.
Adjourned accordingly at twenty-nine minutes past Ten o'clock.